Bandung Sept 15th 2020, Head of Ecosystem Development Terra (LUNA) Daniel Hwang join a live Ask Me Anything session in Forum Crypto Moonlight Indonesia.

MOD: Hi everyone and welcome to the AMA on Forum Crypto Moonlight Official Group We’re honored to host an Ask-Me-Anything session with TERRA NETWORK

SESSION INTRODUCTION PROJECT

MOD: Q1. Can you introduce yourself and your role at Terra network?

Mr. Daniel Hwang: I’m Daniel Hwang, Head of Ecosystem Development, I manage the ecosystem verticals of 3rd party development, validators, community, and research. As someone who has worked with the general adoption of cryptocurrency since 2013 from the extremes of digital/crypto-natives to users exploring different options for remittances in filipino fishing villages, I have had exposure to the many domains that can and have been impacted by the benefits of blockchain. My joining of Terraform Labs stemmed from understanding the problems that the developer communities have been working on. From Terra’s emphasis on exposure to non-crypto natives, I have been working to continue the mass adoption of Terra’s products from the CHAI payments app that has successfully reached almost 2 million users, the launch of Anchor transforming the interchain DeFi space, to many more products which will give users the opportunity to be exposed to this transformative technology.

I graduated from Johns Hopkins University with a M.S. in Computer Science where I focused on cryptography and health technology applications. I also have a bachelors degrees in Computer Science from the University of Maryland, College Park and Biology and Religion from Swarthmore College. I got my start in cryptocurrency as a miner in 2013.

MOD: Q2. Please tell me about the Terra project?

Mr. Daniel Hwang: Terra is building new financial infrastructure that works better for everyone. The network is powered by a family of stablecoins, each pegged to major fiat currencies all algorithmically stabilized by Terra’s native governance and staking token, Luna. Terra’s mission is simple: set money free by building open financial infrastructure.

Luna, as the native staking asset from which the family of Terra stablecoins derive their stability, utility, and value, acts both as collateral for the entire Terra economy and as a staking token that secures the PoS network. Luna can be held and traded as a normal cryptoasset, but can also be staked to accrue rewards in the network generated from transaction fees. Luna can also be used to make and vote on governance proposals.

The family of Terra stablecoins achieve stability through consistent mining rewards with a contracting and expanding money supply. For example, if the system has detected that the price of a Terra currency has deviated from its peg, it applies pressure to normalize the price. Currently, the family of Terra stablecoins include: KRT (Terra stablecoin pegged to Korean Won), UST (Terra stablecoin pegged to US Dollar), MNT (Terra stablecoin pegged to Mongolian Togrog), SDR (Terra stablecoin pegged to IMF SDR), with more being added in the future.

The power of multi-chain operable smart contracts is a key feature that Terra has also been working to add. Powered by CosmWasm, these smart contracts are able to interoperate natively with the ecosystem of Cosmos blockchains with IBC (InterBlockchain communication). These smart contracts leverage the speed of WASM and the power of Rust and securely address most known attack vectors seen on Ethereum.

Terra has made enormous strides in mass adoption within payments space from the Chai payments app built on its platform. Chai has risen to become one of the most popular applications built with blockchain with over 3% of the South Korean population using Chai to pay for goods and services ranging from Korea’s #1 online travel agency, #1 bookstore, #1 gaming publisher, #1 convenience store, the top e-commerce sites, and many more. As of August 2020, Chai currently has over 1.9 million users, an annual run rate of $1 billion, and has shown an average retention rate of over 80% when used with multiple merchants.

Terra will also be launching Anchor. Anchor is a DeFi protocol that leverages the block rewards of every major PoS blockchain to power yields on stablecoin deposits. Anchor aims to become the “gold standard for passive income in blockchain.” It will be offering principal protection, instant withdrawals, and a steady and high APR.

The Terra ecosystem has approached and achieved mass adoption that has resulted from solid go-to-market strategies with strong mechanism design. This has resulted in over $78 million in transaction fees within a 3 month period, over $25 billion GMV exposed to the over 1.7 million users on Chai, and placing 3rd in total transaction revenue only behind that of Bitcoin and Ethereum.

When Terra was created in January 2018, it had the singular vision of facilitating the mass adoption of cryptocurrencies by creating digitally native assets that are price-stable against the world’s major fiat currencies. Keeping in mind that previous innovations in the technology of money was bootstrapped by large payment networks (Alipay with Taobao, Paypal with eBay, Visa with banks), Terra was born with the support of the Terra Alliance, 15 large e-commerce companies in Asia that collectively process 25 billion USD in annualized transaction volume and 45 million users. The vision of the project is that with the adoption and user engagement of a massive payment network, it will be able to, for the first time, bootstrap a blockchain payment network to the scale it deserves and facilitate far more powerful products and use cases through its infrastructure.

MOD: Q3. Is Terra a single stablecoin or a basket of stablecoins? What is Luna?

Mr. Daniel Hwang: This is a great question and a common one. Terra is actually a basket of stablecoins.
We have a basket of stablecoins that are each pegged to their respective fiat currencies. For example, we have a KRT which is Terra’s stablecoin for South Korea’s KRW. We also have a UST for the US Dollar. We also have an SDT for the IMF SDR. Finally, we have the MNT, for Mongolia’s Tughrik.
Luna is the stabilizing asset in the Terra network that is used to reward validators and in governance.
Much of this information can be found in our block explorer, station: https://station.terra.money/

MOD: Q4. What makes Terra different from other stablecoin projects like Tether and MakerDAO?

Mr. Daniel Hwang: There are a variety of stablecoins beyond that of Tether and MakerDAO’s dai that exist to serve different ecosystems. As we know Tether is a supposedly fully backed token to a fiat peg, there are exchange stablecoins, and MakerDAO’s dai serves as an example of an attempt at decentralized governance model for a stablecoin.
Terra’s stablecoins are all pegged to their respective fiat currencies (KRT to KRW, UST to USD, etc). Through our inflationary and deflationary mechanism design with the Luna token, we are able to keep stability algorithmically. Further, all of the Terra stablecoins are swappable with each other on-chain without the need for a counterparty.
This approach of ours is to ensure the viability of stablecoins for use in a commercial setting. For example, in the setting of international payments, you can accept multiple different types of currencies and have settlement in just one currency within one block time (6 seconds).

MOD: Last question from me

MOD: Q5. Is Terra fee-based or inflation-based? What is the reasoning?

Mr. Daniel Hwang: Terra operates on a fee-based model. There are significant benefits for a fee-based model for the Terra ecosystem and network.
As it has been recently disclosed. Terra ranks just 3rd behind that of Bitcoin and Ethereum in accumulated transaction fees—more than $4.3 million in fees to date with more than $800k generated in rewards for Terra validators. What is important about a fee-based model is its presentation of objective valuation vs that of an inflation-based one. From the CHAI app that uses the Terra blockchain for transaction and settlement, real external value of actual consumer to merchant purchasing is being represented on the blockchain. These real transaction fees are instrumental to real valuation as well as network security.
Transaction fees represent value that is captured externally as we have with CHAI users spending at merchants. With inflation-based models, value is more difficult to base.
You can read more on this topic here that i’ve published along with our Head of Research, Nick Platias: https://medium.com/terra-money/the-role-of-transaction-fees-in-network-valuation-and-security-90540c422ff

SESSION QUESTION FROM TWITTER

MOD: Q1. From @Jeonglahanjig

what are the ways that LUNA Token generates profits/revenue to maintain your project and what is its revenue model ? How can it make benefit win-win to both investor and your project ?

Q2. From @Withoutyousam

Investors seem to only care about the price of the token instead of the real value of the project, how does Terra attract newcomers and keep members long-term with the project? What is the real value of Terra?

Mr. Daniel Hwang: great questions. my answer will be a bit long, but these were good questions that justified a longer response

Mr. Daniel Hwang: The Terra blockchain is a fee-based network and not an inflation based network. This is a very important distinction in how value is generated and how it flows into Luna stakeholders (tokenholders). There are two ways you can think of value accruing to Luna token holders in the Terra network: 1) usage of stablecoins (transaction fees), 2) demand of stablecoins (luna burn).

First, the usage of stablecoins results in transaction fees in the network that those fees contribute real value to the network and Luna stakeholders. What’s important to note is that we’re talking about real demand, not spoofed demand where we can just trivially send tokens back and forth amongst each other to fake transaction volume. What we’re seeing on Terra is actual real-world transactions through the Chai payments app built on Terra. Terra has made enormous strides in mass adoption within payments space from the Chai payments app built on its platform. Chai has risen to become one of the most popular applications built with blockchain with over 3% of the South Korean population using Chai to pay for goods and services ranging from Korea’s #1 online travel agency, #1 bookstore, #1 gaming publisher, #1 convenience store, the top e-commerce sites, and many more. As of August 2020, Chai currently has over 1.9 million users, an annual run rate of $1 billion, and has shown an average retention rate of over 80% when used with multiple merchants. This has resulted in over $78 million in transaction fees within a 3 month period, over $25 billion GMV exposed to the over 1.7 million users on Chai, and placing 3rd in total transaction revenue only behind that of Bitcoin and Ethereum.

To dive into this a bit more, we go into the role of transaction fees in both network valuation and security (specifically with that of a proof of stake network as we are). https://medium.com/terra-money/the-role-of-transaction-fees-in-network-valuation-and-security-90540c422ff

Let’s first use an example to make the clear differentiation between inflation-based and fee-based networks (of which Terra is a fee-based network). As stated, transaction fees themselves do not merit sole standing as a key indicator of a blockchain network’s success, as they can be trivially spoofed. It is the fact that transactions are done by real, highly engaged users that find utility in Terra which makes transaction fees a meaningful metric. This capture of transacted value ultimately accrues to the Luna holders who participate in Proof of Stake (PoS). Transaction fees of a blockchain network, we will argue, are instrumental to both determining valuation and assessing network security.

We believe that transaction fee rewards provide an objective basis for network valuation, while inflation rewards do not. In the case of Luna, transaction fees represent value that is captured externally (consumers and merchants paying to use Terra), as opposed to value issued internally (inflation). We believe that this property of externally captured rewards sets Luna apart from the vast majority of PoS assets. From an earlier piece that we wrote on the topic (lightly edited):

Let’s imagine a fictitious inflation-based PoS token called Mare (sea) that pays a 10% annual yield. This means that if Alice stakes 10 Mare for a year, the network will print 1 new Mare and give it to her as a reward. If Bob holds 10 Mare over the same period without staking he receives no reward. What’s essentially happened here is that Alice’s share in the network has increased (her stake relative to Mare’s total supply), while Bob’s has decreased. In other words, the network has used inflation to redistribute Mare ownership, thereby taxing people like Bob who do not stake. What if everyone stakes (say Alice and Bob, the only two holders)? Then they both maintain their network ownership, so their yield net of inflation is zero. In other words, staking in an inflation-based PoS network is a way to protect one’s ownership from being diluted, and “yield” is a measure of punishment for not doing so rather than a measure of reward. It is safe to assume that at steady state, the majority of holders will stake precisely for this reason. All in all, knowledge of Mare’s “yield” leaves us none the wiser as to what it is worth.

Contrast this reward system to one based on transaction fees like Luna’s: when value is transferred on the Terra network, Luna captures a small fraction of that in the form of Terra rewards. This happens every time someone uses Terra to transact or make a purchase. Hence, value external to the network accrues to Luna in a predictable manner, i.e. proportionally to aggregate “value flow”. In our case the underlying economy from which value is captured is well understood — the fast growing Asian e-commerce market which Chai is rapidly infiltrating. It is in this vein that we are able to conduct straightforward analysis to project the value that will accrue to Luna over time. What is more, value accrues in a fiat-pegged currency (Terra) rather than in the staked asset (Luna), thus creating an objective basis for quantifying said value. Discounting Terra to the present is meaningful; discounting Luna to the present is circular.

The stark contrast between value-based and inflation-based rewards mechanisms has significant implications for valuation of the PoS asset. Assets which are rewarded in value-capture terms are easy to value: one simply needs to project value flow (in our case: Terra transaction volume) and the rate of value capture (in our case: transaction fee). On the contrary, inflation-based rewards offer zero basis for valuation — as we saw earlier the “yield” of a PoS asset has nothing to say about its value, only about how fast it inflates (how fast it loses value). To value such assets, one needs to resort to more ill-defined methods that are independent of their yield. The ability to value an asset in a systematic way is a core requirement for sustainable demand. We see Luna’s value-based rewards system as a significant advantage relative to its PoS peers.

Second, there is a clear case for how increase in stablecoin demand results in value accrual for Luna holders because of the systems algorithmic stabilization mechanism. In short, whenever we mint more stablecoins, there is a process of burning Luna which artificially deflates the amount of Luna available, introduces scarcity and thus value accrual. To get a bit more into how this works, i’ll explain the stability mechanism below:

As stated, Terra has a family of stablecoins each pegged to a specific fiat currency. The stability mechanism for Terra’s family of stablecoins involves supply adjustment according to demand. Let’s use KRT (Terra’s Korean Won pegged stablecoin) as an example.

Let’s say that demand for KRT increases and it causes KRT price to increase and stray above its KRW peg. To bring back KRT price to its appropriate KRW peg, Terra’s system incentivizes arbitrage opportunities to increase the circulating supply of KRT. (An increase in circulating supply of KRT dilutes the value of KRT and can bring back the appropriate price peg).

This is achieved by allowing users to send the system 1 KRW worth of Luna (Luna burn) and receive 1 KRT (newly minting KRT and generating seigniorage), increasing the KRT supply. The price difference from how far KRT had deviated from its peg is reflected in profit for the user if they choose to sell their purchased KRT (at real KRW price) on an exchange. This mechanism thus incentivizes natural arbitrage opportunities to allow more KRT to enter circulation and bring back the KRT peg.

Now, let’s say that demand for KRT decreases and it causes KRT prices to decrease and stray below its KRW peg. To bring back KRT price to its appropriate KRW peg, Terra’s system similarly incentivizes arbitrage opportunities to decrease the circulating supply of KRT. (A decrease in circulating supply of KRT increases the value of KRT and can bring back the appropriate price peg).

This is achieved by allowing users to send the system 1 KRT and receive 1 KRW worth of Luna, decreasing the KRT supply. Users can make a profit by buying 1 KRT from exchanges and selling it to the system, receiving 1 KRW worth of Luna in return. This reduces the circulating supply of KRT at the cost of diluting the Luna supply, ensuring that the peg is maintained.

From the system side, Terra price making is done via Luna. For the system to buy 1 KRT, the protocol will mint and sell 1 KRT worth of Luna. For the system to sell 1 KRT, the protocol will earn 1 KRT worth of Luna.

Unlike most PoS assets, Luna’s staking returns aren’t inflationary but capture value creation in the network. A small fraction of each transaction in the network is captured in the form of transaction fees and is transferred to Luna stakers. As transaction volume increases, the cash flow generated by the transaction fees also increases, making returns to staking and therefore Luna more valuable.

On the other hand, as transaction volume decreases, the cash flow generated by transaction fees decreases, leading to depreciation of Luna’s value. To minimize short-term volatility of staking returns, the stability mechanism adjusts the transaction fees in a counter-cyclical fashion. In the long-run however, Terra’s transaction volume will be the main determinant of Luna’s value.

Finally, there are some excellent valuation pieces below contributed by the external community:

https://medium.com/block42-blockchain-company/terra-luna-valuation-a-serious-visa-mastercard-competitor-f20a0946fc64

https://ournetwork.substack.com/p/our-network-issue-26

You can also view revenue metrics on tokenterminal under Blockchains(L1) where you can see annualized revenue of Terra coming just 3rd behind that of Bitcoin and Ethereum: https://www.tokenterminal.com/

Mr. Daniel Hwang: ill give you guys some time to read

MOD: The answer is very clear and really helps us to understand more deeply the terra Network project

MOD: Can we move on to the next question?

Mr. Daniel Hwang: sure

MOD: Q3. From @cantikamaliaaa

what is TERRA NETWORK what are the benefits we get from TERRA NETWORK because there have been many promising projects that have finally disappeared, not in accordance with the initial fission and mission?

Mr. Daniel Hwang: there are several benefits

Mr. Daniel Hwang: – a family of native stablecoins that are pegged to various fiat currencies (not just one). I believe this is important in allowing Terra stablecoins to be used easily without any additional barriers of conversions for specific regions. After all, 1 USD means something very different in America vs Vietnam for example. This is the same reason why it is difficult to denominate BTC for everyday payments. Who will understand 0.00013578 BTC to pay for a sandwich? There must be localization for stablecoins and we believe that is vital to adoption (as we have seen with the mass adoption in Korea with over 2 million users to date). Further, Terra allows for native on-chain swaps between our stablecoins. You can swap a Korean Won pegged stablecoin (KRT) with a US Dollar pegged stablecoin (UST) natively onchain easily. A possible use case that is valuable beyond just localization? Imagine you’re a Korean merchant that sells Kpop BTS sweaters all around the world. You can pay for that sweater in Philipine Peso pegged stablecoin for example, but when it arrives at the merchant, the merchant can easily swap it for Korean won pegged stablecoin and settle into fiat easily that way. Both the filipino buyer interacts with this purchase in his/her own native currency that he/she is familiar with and the merchant does as well.

Mr. Daniel Hwang: – speed, scalability, and robustness. The Terra blockchain is built using the Cosmos SDK which offers for maximum TPS of up to 10,000 tps with 250 bytes of data. Terra uses Tendermint consensus.

Mr. Daniel Hwang: – CosmWasm smart contracts. The CosmWasm smart contract platform provides a WebAssembly (WASM) runtime through a plug-and-play module that can be easily integrated into existing Cosmos SDK blockchains. CosmWasm allows users to upload their own WASM-based smart contracts which can be written in a variety of languages, enabling the use of custom logic alongside functionality provided by the blockchain’s native modules. These smart contracts leverage the speed of WASM and the power of Rust and securely address most known attack vectors seen on Ethereum.

MOD: Q4. From @moonraiserz

with a function as a stable coin and an open platform for dapps. What future plans do your team have to attract more users, especially for the Southeast Asia region and especially Indonesia?

Mr. Daniel Hwang: We will continue to increase mass adoption for Terra not just with Chai’s expansion plans for southeast asia, but for other Terra applications as well.

We have certainly seen great progress in adoption with the Chai payments app. I don’t think there are any other direct consumer applications that have the numbers we’ve seen with Chai both in user counts, transaction volume, and real generated fees. You can find more information on Chai here: chaiscan.com

Continuing the narrative of mass adoption through abstraction, Anchor is a huge next step into the DeFi space which will be accessible to everyone. With Anchor we expect to bring a savings product whose yields are powered by proof of stake network block rewards. Anchor is a DeFi protocol that specifically leverages the block rewards of every major PoS blockchain to power yields on stablecoin deposits. Anchor aims to become the “gold standard for passive income in blockchain.” It will be offering principal protection, instant withdrawals, and a steady and high APR. Not only will Anchor provide these services, but it can be trivially integrated into platforms with Chai and have its native users easily transition to using it as well. Anchor will unlock both crypto-natives and the rest of the world to using it as a savings product that can be both abstracted away for non-crypto natives (think of it being offered as a savings product offered by a traditional financial institution completely abstracted and as easy as selecting it as a savings product) and a traditional DeFi product that you are all already familiar with. We can truly bridge “CeFi to DeFi”.

MOD: Last question from Twitter

MOD: Q5. From @VeeMeyr

Could you please explain a little about how Terra uses DPoS consensus in its ecosystem and what are the main advantages of Terra using DPoS consensus over some other consensus mechanisms?

Mr. Daniel Hwang: As mentioned a bit in a question earlier, dPOS gives speed and scalability. The Terra blockchain is built using the Cosmos SDK which offers for maximum TPS of up to 10,000 tps with 250 bytes of data. Terra uses Tendermint along with other Cosmos SDK based chains.

SESSION FREE ASKING

Q1 From @cryptolover1010: Users often care less about technology, but rather the value of the token. How do LUNA manage to strike a balance between developing the technology and also improving the value of the token?

Mr. Daniel Hwang: this is something we saw exactly with Chai. The idea was mass adoption through abstraction. Chai users dont have exposure to blockchain but maintain the benefits. This is a great way to bring non-crypto-natives into our ecosystem and slowly bring them in and expose them to new ideas

Q2 From @kartika84: As we know, every successful project has a few stories behind the scenes, what’s the story behind TERRA success? Are there any special upcoming from TERRA updates that you want to show/share with us? @Hwangarang

Mr. Daniel Hwang: constantly building and shippping products! Here’s our roadmap! https://medium.com/terra-money/terra-roadmap-2020-877f1b2c3e5f

Q3 From @DiegoRME: DeFi and Dapps are two pillars primed to rule cryptocurrencies, what’s your strategy to DeFi and Dapps?

@Hwangarang

Mr. Daniel Hwang: very good question. We are actually in the process of bridging Terra to ethereum. We believe that DeFi is essential to the growth and innovation of products in the cryptocurrency community. Our product Anchor (anchorprotocol.com), is a great example of a native DeFi product, but we also believe that interoperability with Ethereum to have Terra assets is great and we are working to make that happen!

Q4 From @AugusS7: Really that the currencies TerraUSD, TerraSDR and etc, are stable, but really $ LUNA is it? How can these stablecoins be backed by unstable tokens like LUNA?

Mr. Daniel Hwang: I explained in our stability mechanism answer but i’ll post again here:

As stated, Terra has a family of stablecoins each pegged to a specific fiat currency. The stability mechanism for Terra’s family of stablecoins involves supply adjustment according to demand. Let’s use KRT (Terra’s Korean Won pegged stablecoin) as an example.

Let’s say that demand for KRT increases and it causes KRT price to increase and stray above its KRW peg. To bring back KRT price to its appropriate KRW peg, Terra’s system incentivizes arbitrage opportunities to increase the circulating supply of KRT. (An increase in circulating supply of KRT dilutes the value of KRT and can bring back the appropriate price peg).

This is achieved by allowing users to send the system 1 KRW worth of Luna (Luna burn) and receive 1 KRT (newly minting KRT and generating seigniorage), increasing the KRT supply. The price difference from how far KRT had deviated from its peg is reflected in profit for the user if they choose to sell their purchased KRT (at real KRW price) on an exchange. This mechanism thus incentivizes natural arbitrage opportunities to allow more KRT to enter circulation and bring back the KRT peg.

Now, let’s say that demand for KRT decreases and it causes KRT prices to decrease and stray below its KRW peg. To bring back KRT price to its appropriate KRW peg, Terra’s system similarly incentivizes arbitrage opportunities to decrease the circulating supply of KRT. (A decrease in circulating supply of KRT increases the value of KRT and can bring back the appropriate price peg).

This is achieved by allowing users to send the system 1 KRT and receive 1 KRW worth of Luna, decreasing the KRT supply. Users can make a profit by buying 1 KRT from exchanges and selling it to the system, receiving 1 KRW worth of Luna in return. This reduces the circulating supply of KRT at the cost of diluting the Luna supply, ensuring that the peg is maintained.

From the system side, Terra price making is done via Luna. For the system to buy 1 KRT, the protocol will mint and sell 1 KRT worth of Luna. For the system to sell 1 KRT, the protocol will earn 1 KRT worth of Luna.

Q5 From @MrDungxTran: Why is CHAI necessary to make payments? Not enough with a wallet and ready? What are the benefits of using CHAI?

Mr. Daniel Hwang: abstraction. mass adoption through abstraction has given us successes. you can see numbers here: chaiscan.com. We lower the barriers to entry with abstraction.

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