The Rise of Terra Blockchain: Unpacking the Narrative Logic Behind Web3.0

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At the end of 2021, Terra emerged as the last dark horse to break through from the public blockchain赛道. Its token LUNA surpassed $100 for the first time on December 24, representing a nearly 30-fold increase from its yearly high at the start of the year. According to Coin Gecko data, Terra's stablecoin UST market cap has exceeded $9 billion, overtaking DAI to become the fourth-largest stablecoin by market cap. In the more niche algorithmic stablecoin赛道, UST is clearly the leader.

According to data from Crypto Rank, a crypto assets data company, Terra was the fastest-growing blockchain by total value locked (TVL) in 2021, with approximately $17.9 billion in TVL and a staggering 35,700% annual growth rate. Currently, Terra ranks second in total TVL across the industry, trailing only Ethereum's $154 billion, and surpassed Solana ($11.5 billion), Avalanche ($12 billion), and BSC ($16.7 billion) consecutively in the latter part of the year.

In reality, the crypto market landscape shifts rapidly, and competition in赛道 like public blockchains, DeFi, and NFTs is fierce, with major ranking changes occurring on cycles as short as months, weeks, or even days. However, Terra's ability to stand out against the backdrop of a recent market downturn naturally reflects a different narrative logic from that of previously dominant industry newcomers.

This article aims to use a reasonably concise format to analyze the reasons behind Terra's recent surge while attempting to deconstruct the paths taken by leading or emerging players in the crypto world. This is intended purely as a reference for traders and does not constitute any form of investment advice.

1. Using Algorithmic Stablecoins as an Entry Point to Build an On-Chain Payment宝

As is well known, South Korea, with its relatively advanced information technology industry, has also nurtured a considerable internet economy in recent years. However, limited by its population and market size, it has had little presence in this round of commercial revolution dominated by China and the US. Additionally, with conglomerates controlling economic lifelines and ordinary people finding it nearly impossible to rise through the ranks, South Korean youth have begun to view crypto assets as a vehicle for a fresh start, with crypto trading fervor that few countries around the world can match. These two backgrounds jointly gave rise to Terra as a "new species."

Both core founders of Terra have impressive backgrounds in traditional internet companies. One previously worked at Microsoft and later founded Anyfi, a peer-to-peer network sharing service tool. The other founded TMON, South Korea's earliest group-buying website. Perhaps it was a shared dream of building a financial ecosystem based on blockchain technology that brought these two individuals together, founding the project in 2018. From launch, Terra positioned itself as a blockchain version of Payment宝, issuing the algorithmic stablecoin UST as the hard currency within its ecosystem.

Worth noting is that as an algorithmic stablecoin , UST is not collateralized by fiat currency or other physical assets. Its value stabilization mechanism is linked to the token Luna: for every UST minted, $1 worth of Luna must be burned. Luna's arbitrage mechanism ensures UST's peg to the US dollar. Additionally, UST is pegged to fiat currencies of the US, South Korea, Mongolia, and other countries, with specialized stablecoins derived accordingly. In early 2019, Terra had already become Mongolia's first blockchain Payment system.

Following the launch of this crucial stablecoin infrastructure, CHAI, a distributed Payment gateway system backed by Terra, achieved success in South Korea's domestic market. According to media reports, by the end of December 2021, CHAI's API had helped businesses integrate up to 20 payment options, providing a one-stop solution for local payment gateways, digital wallets , wire transfers, carrier billing, PayPal, and debit and credit card payment channels. For businesses, this saved significant time and network engineering costs, all underpinned by CHAI's far lower transaction fees compared to traditional institutions. Regarding compliance, CHAI operates a fiat Payment gateway regulated by the South Korean government and can connect to approximately 15 major banks. CHAI also provides debit card services for regular users.

Of course, applications like CHAI are merely Terra's tendrils reaching into the traditional financial world of the future. In its early stages, the team focused more on building an on-chain DeFi application ecosystem. To date, Terra hosts over 70 dApps and has constructed a comprehensive DeFi landscape, including fixed-rate protocols Anchor and Lido, decentralized Robinhood Mirror, decentralized insurance protocol Ozone, and decentralized exchanges Terraswap and Astroport. According to the latest data from DeFi Llama, Lido and Anchor hold TVL of $12 billion and $8.74 billion respectively, ranking 6th and 9th among DeFi protocols.

In fact, when discussing decentralized network Payment systems, one must mention XRP . But unfortunately, with gradual decentralization in recent years and facing SEC lawsuits and investigations, it missed the DeFi wave and had little presence in the 2021 bull market. Of course, compared to Terra's on-chain financial ecosystem, XRP's single-application use case also seems thin. It is clear that in today's crypto industry, ecosystem development is not only what capital favors but also a topic representing future想象.

2. Quietly Completing Technical Upgrades to Enhance Cross-Chain Interoperability

All new public blockchains share a common dream: to replace Ethereum. While offering lower fees, they focus more on refining cross-chain and scaling technologies and optimizing developer experience. In terms of enhancing cross-chain interoperability, Terra has this same ambition.

In September of this year, Terra announced the completion of the "Columbus-5" upgrade, optimizing the core system to facilitate on-chain asset transfers via IBC. This was viewed by supporters as a decisive driver for the ecosystem's explosion. Additional improvements in this upgrade include: burning all seigniorage; upgrading to Stargate; and integrating Ozone (Terra ecosystem insurance protocol) and Wormhole. Terra's Inter-Blockchain Communication (IBC) integration is expected to increase the adoption of its stablecoin Terra USD (UST) throughout the Cosmos ecosystem.

Specifically, Terra, developed based on Cosmos SDK, formally activated the IBC standard (Inter-Blockchain Communication) through a governance proposal vote on "Enable IBC Transfer." Terra ecosystem users can cross-chain connect to other blockchain networks supporting the IBC standard to send and receive assets. Currently, blockchain networks supporting the IBC standard include Cosmos Hub (ATOM ), Irisnet (IRIS), Osmosis (OSMO), and Crypto.com (CRO), among others. This combination is called Stargate. Enhanced compatibility with Cosmos's "internet of blockchains" means data can be shared between Terra and other Cosmos-integrated blockchains, such as Polkadot and Solana, or even Ethereum. The Stargate integration opens Terra to hundreds of dApps in the Cosmos ecosystem. In short, Terra's alignment with Cosmos has strengthened its cross-chain capabilities.

Another set of data is equally noteworthy: at the end of 2021, Cosmos stated that since IBC's launch 8 months ago, 25 public blockchains had connected to the IBC protocol. The total market cap of ecosystem tokens (ATOM , OSMO, LUNA , CRO, SCRT, etc.) exceeded $60 billion, with over 5.8 million IBC transactions cumulatively processed. In 2022, the IBC protocol also plans to cross-chain connect to Bitcoin , Ethereum, Polkadot, Avalanche, Harmony, Celo, and other public blockchain networks, further unlocking massive liquidity in the blockchain space.

IBC is an interoperability protocol and the primary communication protocol used within the Cosmos ecosystem, designed to transfer arbitrary data between any state machines. IBC can be used to build a wide range of cross-chain applications, including but not limited to token transfers, cross-chain accounts (delegated calls between two chains), non-fungible token transfers, and oracle data feeds.

Cosmos, alongside Polkadot, is known as one of the "two giants of cross-chain" technology. However, during the 2021 DeFi + NFT boom and the overall bull market, Cosmos was notably quiet with little attention. But based on this data, Cosmos may have been quietly laying the groundwork for cross-chain technology, which is after all one of the most imaginative赛道 in the crypto world. The core pain points of cross-chain — expensive, slow, congested, and difficult — and their resolution will unlock substantial incremental value for the industry. As Cosmos's cross-chain technology and ecosystem mature, the returns for the Terra blockchain will only grow larger.

Terra's promotional style is roughly similar to Cosmos, following a low-key and understated approach without a focus on marketing, which contrasts sharply with Polkadot, Solana, BSC, and Avalanche. However, one noteworthy detail is that Terra's enthusiastic community members compare it to the next Y Combinator (the famous US startup incubator), especially as the ecosystem gained traction in the latter half of the year. Around December 21, 2021, former Y Combinator employee Natalie Luu announced her role as Head of Ecosystem Development at Terra, providing services for new distributed applications built on Terra.

3. Second-Place Ranking Among Public Blockchains Is Now the Norm; Aligning with Web3.0 Logic May Be the New Year Trend

Apart from the obscure and complex technical logic, using substantial capital to stimulate the ecosystem may be more convincing — at least for investors. In September 2021, Terra officially launched a $150 million ecosystem incentive program to support on-chain projects and developers. Looking at the data, Terra's TVL explosion began around September and October.

Based on this, against the backdrop of an overall bull market in 2021 crypto, as DeFi applications on the Ethereum blockchain spilled over, new public blockchain players like BSC, Solana, and Avalanche, while offering more cost-effective basic services, staggered the launch of ecosystem reward policies,轮流 attracting large numbers of on-chain developers. This has led to the revolving door on the "second-place" spot among public blockchains. One could say that Terra's current dominant position may be temporary, cyclical, or simply part of the routine操作 for new public blockchain players that may continue in the years ahead. Because as the US interest rate hike expectations strengthen in 2022, the digital assets bull market may not be sustainable.

At the same time, the following factors also determine that Terra may not be able to indefinitely maintain the narrative of being the "On-Chain Payment宝" and the "Ethereum Challenger":

1. UST is essentially an algorithmic stablecoin without physical asset collateral, making it highly susceptible to price fluctuations, especially during extreme market conditions. For example, during the May 19 market crash, UST's volatility far exceeded that of centralized stablecoins like USDT, nearly causing community fragmentation. If the fundamental attribute of price stability is compromised, UST will lose credibility, which could then trigger a collapse of the entire Terra ecosystem;

2. Currently, Terra's ecosystem is overly concentrated in the DeFi领域. It has achieved little in NFT and GameFi, which have greater potential for driving traffic, and has not produced any well-known native applications. This will severely limit future user growth. According to DeFi Llama data, the top five protocols by TVL on Terra are Lido, Anchor, Terraswap, Astroport, and Mirror. These five DeFi protocols alone hold approximately $16 billion in TVL, accounting for over 91% of Terra's total on-chain TVL. In contrast, BSC and Tron had already hosted several influential NFT auctions in the first half of 2021 and subsequently launched NFT marketplaces. Therefore, Terra's actions in the NFT space are滞后 and sluggish;

3. As mentioned earlier, spending lavishly acts like a shot of adrenaline, quickly energizing the Terra ecosystem. However, when subsidies taper off and the tide recedes, can Terra continue its momentum? Anchor, Terra's native lending rate protocol, once saw its TVL surge into the top ten, but the core driver of this growth was an interest rate as high as 20%. When capital finds new public blockchain projects with more compelling narratives, Terra may ultimately be abandoned, with on-chain hot money subsequently seeking new value洼地;

4. Although Terra-backed financial Payment application CHAI is regulatory-friendly and growing rapidly, it cannot pose any competitive threat in terms of scale compared to other domestic payment giants. Of course, this is also due to the inherent incompleteness of blockchain technology itself and the insufficient global acceptance of distributed applications in the business world. But this is sufficient to illustrate that Terra's vision of an on-chain Payment宝 is destined to be a long and arduous journey, fraught with difficulties.

The crypto market landscape shifts in an instant. Amidst all this uncertainty, what can be determined is that very few emerging projects today can sustain popularity for long, and Terra is no exception. However, Terra's rise can be understood as: under the全新的 narrative logic of Web3.0, crypto developers, in order to prove the viability of Web3.0 concepts and the growth potential of their projects, are proactively embracing the traditional financial world and continuously enhancing cross-chain interoperability, pursuing a user experience comparable to traditional internet products — while their economic models and distribution mechanisms are distinctly crypto in nature. As Terra's founder stated in their 2022 industry prediction: the cognitive shift toward Web 3 has already begun.

Looking ahead, Web3.0 may be the biggest trend of 2022. In this process, can players with greater想象 emerge? In the new year, we remain hopeful and continue our探索.

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The Rise of Terra Blockchain: Unpacking the Narrative Logic Behind Web3.0

The Rise of Terra Blockchain: Unpacking the Narrative Logic Behind Web3.0

1. Using Algorithmic Stablecoins as an Entry Point to Build an On-Chain Payment宝

2. Quietly Completing Technical Upgrades to Enhance Cross-Chain Interoperability

3. Second-Place Ranking Among Public Blockchains Is Now the Norm; Aligning with Web3.0 Logic May Be the New Year Trend

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