Terra (LUNA): A Stablecoin-Powered Payment Platform

The Terra (LUNA) Crypto Payment Solution and Asian Ecommerce

Digital payment systems are essential to the global economy and have been used for decades. However, most evolve slowly, and today’s payment solutions tend to be locally confined, reliant on rent-seeking intermediaries, and built to operate on outdated infrastructure. Asia’s digital payments industry, in particular, is extremely crowded, with ApplePay, SamsungPay, KakaoPay, Alipay, and over 45 others in use. Myriad undifferentiated products operate without a clear revenue model or core product value, resulting in high user acquisition and retention costs.

Terra has built a next-generation blockchain payment network for the growing Asian ecommerce market that seeks to improve efficiency for payment service providers and increase value for customers. To realize this vision, Terra helped build an ecommerce alliance with 15 initial partners that account for a combined $25 billion USD in Gross Merchandise Value (GMV), and a 45 million-strong customer base.

Terra was built using Cosmos blockchain technology and is designed to challenge incumbent retail payment apps. As a comprehensive end-to-end payment solution, Terra manages to circumvent the entire existing fragmented payment infrastructure. This model allows Terra’s technology to potentially save payment service providers hundreds of millions of dollars per year. For users, Terra differentiates itself from competitors with discounted transaction fees — charging only 0.5 - 2%, while 2.5 - 3% is the industry norm.

Terra Stablecoins and LUNA Coin

To enable the use of Terra’s network for retail payment services, Terra’s partners use Terra stablecoins. Stablecoins are smart contract-enabled cryptographic versions of global fiat currencies that are built to reduce the volatility commonly associated with digital assets. Terra has already rolled out numerous stablecoins, including: TerraUSD (UST), TerraCNY, TerraJPY, TerraGBP, TerraKRW, TerraEUR, and the International Monetary Fund’s TerraSDR for use in a wide range of global marketplaces. Terra stablecoins offer seamless cross-border value exchange and instantaneous swaps between one another, all while employing instant settlement and extremely low fees for use by anyone, anywhere.

While Terra’s stablecoins ensure seamless transactions and the stability of fiat currencies, the Terra crypto network uses its native LUNA currency as a utility and governance coin to operate the collateralizing mechanisms that back and secure the price stability of the Terra network's stablecoins. This means that LUNA coins have an elastic supply that fluctuates according to the needs of Terra’s collateralization mechanism. Additionally, LUNA is used as part of Terra network validator staking via its Proof-of-Stake (PoS) consensus mechanism.

Many of Terra’s merchant partners and customers access the Terra blockchain network directly through Terra’s proprietary wallet, Terra Station. Terra Station supports Terra’s staking utility coin LUNA and all Terra stablecoins, as well as Anchor Protocol (ANC) and Mirror Protocol tokens (MIR). Terra Station additionally supports all other Terra ecosystem assets. The Terra wallet also allows users to interact with numerous Terra-based decentralized applications (dApps) built on the platform to swap tokens, delegate LUNA to validators, and manage funds — among other purposes.

A specialized suite of open application programming interfaces (APIs) allow merchants to set up point-of-sale (POS) payment integration with Terra Station for instantaneous purchases and settlement, and it’s designed to operate as both a mobile and web-based wallet.

The Terra Crypto LUNA Coin-Incentivized Discount Model

The Terra protocol is designed to maintain a balanced equilibrium of all of its fiat-based stablecoins like TerraUSD, TerraKRW, TerraEUR, and TerraSDR. The system works to maintain equilibrium by using specialized algorithmic spending and stablecoin usage data gathered directly from the Terra blockchain — and the key to this rebalancing act is LUNA.

When transaction volume across Terra’s large network of payment service providers increases, the overall demand for TerraUSD (and other stablecoins like TerraJPY, TerraGBP, TerraCNY) expands, meaning that Terra must algorithmically issue new LUNA coins to maintain price stability. Conversely, when the Terra crypto network’s payment transaction volume decreases, Terra automatically buys back more LUNA and burns the excess supply.

While the market supply of LUNA in June 2021 was approximately 410 million, the Terra platform’s coin burns via its equilibrium methodology can destroy as many as 58 million LUNA at one time. With a total supply of just under one billion LUNA coins, Terra is thus able to manage its stablecoin monetary policy with robust levers, but remains subject to a degree of supply volatility.

The Terra Crypto Platform: Accessible and Interoperable

The Terra ecosystem also features a development platform and blockchain-agnostic framework that allows software engineers to build their own protocols and dApps on top of the Terra network. Two of the main decentralized finance (DeFi) protocols based on Terra are Anchor Protocol, which offers incentivized staking yield services, and Mirror Protocol, which enables synthetic asset creation and usage.

On top of the services being built in the Terra crypto ecosystem, the protocol aims to become fully interoperable with other leading Layer-1 blockchain solutions. This means that tokenized assets and other data can be moved to and from multiple blockchains simultaneously. As of June 2021, Terra stablecoins are available for cross-chain asset transfer between the Terra blockchain and the Ethereum and Solana blockchains, with more network integrations to come. Through Terra, developers are able to expose dApp userbases to Terra’s payment infrastructure in a permissionless, trustless manner. Further, Terra Bridge is a web-based service that allows users to send Terra, Mirror Protocol, and Anchor Protocol assets back and forth between Ethereum and Binance Smart Chain (BSC).

To accommodate this development, Terra makes use of a smart contract development framework called CosmWasm. CosmWasm enables developers to build smart contracts using Rust, Go, or AssemblyScript programming languages — which can then run on multiple blockchains through the Cosmos Inter-Blockchain Communication (IBC) Protocol framework. Through IBC and other specialized mechanisms, Terra stablecoins and other Terra ecosystem assets can be used for numerous DeFi applications — such as on-chain swaps, oracles, lending, borrowing, staking, synthetic assets, and much more.

The Future of the Terra Crypto Ecosystem

Terra is working toward becoming the leading ecommerce stablecoin payment and DeFi service provider in the world. Terra’s unique value proposition is contributing to the acceleration of blockchain in the Korean and Asian markets, while its main uses have massive potential to be used on a global scale. Terra’s discount model, instant settlement, and extremely low fees for product purchases incentivize merchants and consumers to use the platform. The Terra Station wallet, Terra Bridge, the simplistic approach to application and blockchain development, and the cross-chain value transfer functionality via Cosmos’ interoperable IBC solution come together to produce an evolving blockchain ecosystem that continues to expand.