How crypto-payment enabler Terra is trying to drive mass adoption

This article is from an episode on Decrypt Asia, where we publish the revised transcripts from the show’s podcast interviews related to blockchain. This is heavily revised from the original transcript. For the full interview, go here or here.

Disclosure: LuneX Ventures, Golden Gate Ventures’ blockchain-focused fund, is an investor in Terra.

Terra co-founder Daniel Shin / Photo credit: Terra

Terra co-founder Daniel Shin was the founder and chairman of Ticket Monster or TMON, a South Korean unicorn that had a mobile-first approach to ecommerce.

Now that he’s launching a stablecoin, Shin leverages his experience and network in the ecommerce industry to create everyday use cases for Terra.

In this interview, he walks us through the project’s technology, tokens, user journey, and go-to-market strategy.

What is Terra and why did you choose to go the algorithmic route?

There are many ways to create a stablecoin. For us, we think the ultimate goal of a currency is to be widely adopted and exchangeable with just about any goods or services. And in order to do that, you need to incentivize users to want to use it over the incumbent options.

There are two benefits that I’d like to highlight. First is that a fiat-collateralized stablecoin is obviously easy to design, but it’s highly centralized at the same time. It’s also no different from e-money. So, I thought having a decentralized and transparent stablecoin is the next generation.

Second is if you have to store every dollar in your bank account, then it’s not the best use of your resources. If you could instead use that resource to incentivize users in ecommerce, for example, in the form of discounts or kickbacks, then they would choose it over credit cards or the exisiting wallets.

How does Terra maintain price stability?

Quite simply, there’s a price oracle. So, if the price of Terra falls below the peg, we’d contract its supply so that the price gravitates back up. If the price goes above the peg, we’d expand the supply and dilute it.

To expand the supply, we could print more Terra and distribute that to the open market. The difficulty is with the contraction side of things. That’s why we have a second token called Luna, which serves as collateral to Terra’s economy. Basically, anytime Terra is transacted in ecommerce or offline restaurants, for example, a transaction fee is paid to Luna, which is then distributed to the token’s miners. So, the value of Luna is a market multiple of the transaction fees that it receives.

In terms of Terra contraction, we would temporarily increase Luna’s supply and use the additional Luna printed to buy back Terra and burn the Terra that’s swapped out.