An Overview of the DeFi Landscape in the Terra Ecosystem: More Efficient "Money Legos"

Original Author: 0x137, Rhythm BlockBeats

In the previously overall weak market environment, LUNA became one of the few projects that performed strongly, even reaching a new price high at one point. Unlike other public chains, Terra's DeFi ecosystem is entirely supported by Anchor. As of now, Terra's TVL is approximately $17 billion, with Anchor accounting for $13 billion.

Of course, for Terra to achieve sustainable growth in its ecosystem in the future, relying solely on one flagship protocol is far from enough. Recently, as main protocols like Astroport and Mars Protocol have gradually landed, the future DeFi landscape of the Terra ecosystem has begun to take shape, with composability and network effects becoming increasingly prominent.

Lending Platforms: Anchor, Mars

Anchor

Anchor can be said to be the engine of the current Terra ecosystem and the popularization of UST. By offering a stable APY of 20%, Anchor provides a more predictable income source for stablecoin savers, thus attracting a large amount of UST deposits and loans.

Anchor generates fixed interest rates for savers by utilizing the validation rewards from the Proof of Stake (PoS) network and the interest from borrowing users.

On the Anchor platform, borrowers need to collateralize bLUNA or bETH, which are PoS assets, to borrow UST. bLUNA and bETH are liquid staking derivatives, where "b" stands for "Bonded," representing the holding certificates issued by the Lido platform for LUNA or ETH staked in validation nodes. They can be freely traded or used as collateral, and if bLUNA is in the user's wallet, it will also generate UST staking rewards, which can be claimed on the "bAsset" page in Anchor.

After users deposit bLUNA or bETH, Anchor uses these assets to stake in the Terra network and Ethereum 2.0 network's node validation, earning stable staking rewards.

Of course, less than 10% of validation rewards are definitely insufficient to maintain a 20% APY in the long term; the remaining approximately 10% interest rate comes from the interest of borrowing users. To generate more interest income, Anchor rewards borrowing users with ANC Tokens to encourage them to borrow more UST.

This model is referred to by Anchor as "risk-free interest rate," and for most stablecoin holders, the ability to create stable passive income in the crypto world is very attractive. Over the past year, Anchor's TVL has steadily climbed, recently surpassing Aave to become the second-largest lending platform in the crypto space, and it will soon integrate with the Avalanche ecosystem.

However, as more and more UST is deposited into the platform, Anchor has begun to face the issue of yield exhaustion. Recently, Anchor's governance vote passed a proposal to modify interest rates to ensure sustainability. Even with the modification of interest rates, Anchor still needs other protocols within the ecosystem to share the pressure. In this regard, protocols like Mars Protocol play an important role.

Mars Protocol

In fact, Anchor is more like a savings protocol, providing fixed-rate savings services (Saving-as-a-Service) for individuals and protocols. Mars, on the other hand, has interest rates based on market demand, which means the rates can fluctuate, leading to different yields.

Mars aims to become the universal lending protocol for the entire Terra ecosystem, supporting almost all tokens within the ecosystem as collateral. Although it currently only supports lending services for UST and LUNA, the protocol can add various collateral assets through governance votes in the future.

Since many staked assets do not generate PoS validation rewards, the interest income for savers on the Mars platform comes entirely from the interest of borrowers. This means that Mars's interest income is driven by borrowing demand; the more borrowing demand there is, the higher the lending rates on Mars.

Additionally, Mars can provide unique C2C lending services to other protocols, generating more borrowing demand. Recently, protocols like Alpha Finance, Spectrum Protocol, and Apollo DAO have collaborated with Mars in this regard.

Trading Hubs: Astroport, Loop Finance

Astroport

Before Astroport, the main trading venue in the Terra ecosystem was Terraswap. However, the functionality of this application was very primitive; prior to the version update, Terraswap only had basic trading functions, and liquidity providers could not see their specific earnings, resulting in a significant gap in user experience compared to other ecosystems' DEXs.

The recently launched Astroport will bring significant improvements. In addition to optimizing core functions such as slippage control, price impact preview, exchange rate, and fee calculation, Astroport will also provide liquidity providers (LPs) and traders with visual charts and analytical data, while offering LPs the option of dual-token rewards. LPs can choose to receive only one type of token from the trading pair as a reward or opt to receive both types of tokens.

Furthermore, Astroport plans to adopt the veToken model, granting xASTRO and vxASTRO different levels of voting power and sharing platform revenue between LPs and ASTRO stakers.

These upgrades in Astroport are crucial for the Terra ecosystem, as better pricing and efficiency help other applications within the ecosystem achieve integration, generate economies of scale, and attract more liquidity.

Loop Finance

In addition to Astroport, there is also Loop Finance in the Terra ecosystem. However, Loop is not just a DEX; it is also a community with its own media platform, NFT marketplace, venture capital fund, and mobile application, with 25% of platform fees used to buy LOOP Tokens and distribute them to stakers.

Creators can earn LOOPR rewards by sharing valuable content in the Loop Community. Users can stay updated on the latest DeFi project releases and directly purchase or trade these projects' tokens on Loop. Of course, Loop Ventures will also incubate its own projects and help them launch.

Loop's NFT marketplace is the first in the Terra ecosystem to focus on the utility of NFTs. By staking NFTs through "NFT Bond," NFTs can generate income for their holders.

Highly Composable "Money Legos"

One significant advantage of the Terra ecosystem is that protocols do not operate in isolation but rather in a cooperative competitive relationship. With the lending and trading frameworks established, other DeFi applications in Terra can collaborate on this foundation, forming highly composable "money legos," thereby enhancing the network effects of the entire ecosystem.

Nexus Protocol

Nexus Protocol is a yield optimizer for the Terra ecosystem, maximizing returns for users by establishing yield strategies while ensuring that user funds are not liquidated. The Vault is a yield product launched by Nexus, which brings higher returns to users through automatic yield generation, rebalancing, and optimizing trading costs, allowing users to benefit from Nexus without needing to deeply understand the underlying protocol mechanisms.

Currently, Nexus only supports yield optimization for Anchor. Users can deposit bLUNA or bETH into the Vault and receive nLUNA or nETH as proof. The deposited bLUNA and bETH will be staked in Anchor and borrowed as UST for savings operations according to the yield strategies previously established by Nexus, with the generated yield paid in the form of Psi Tokens. Recently, the Nexus team announced a partnership with Prism on Twitter, and in the future, it will support yield optimization for Prism.

At the same time, users can also place their nLUNA into liquidity pools on Nexus, and the protocol will automatically provide them to Astroport to earn farming rewards, which will also be paid in Psi.

Prism

Prism is a derivatives protocol for LUNA that helps users manage the risks associated with price fluctuations and unstable yields by breaking down digital assets into two different components: yield components and principal components.

Users first need to stake their LUNA in Prism and receive cLUNA as proof. cLUNA can then be broken down into principal LUNA (pLUNA) and yield LUNA (yLUNA), where staking yLUNA can earn staking rewards and airdrops, while holding pLUNA does not provide many yield options. Of course, there is a price difference between the decomposed pLUNA and yLUNA, providing arbitrage opportunities for traders.

Edge Protocol

Edge Protocol is currently in its testing phase. It is similar to Abracadabra in the Terra ecosystem, allowing users to use their yield-generating assets as collateral for lending operations, further enhancing the composability and capital utilization of the Terra ecosystem.

For example, users who have UST savings on the Anchor platform can use their aUST as collateral for loop operations on Edge to enhance their fixed APY. Of course, users can also choose to borrow other assets to participate in various DeFi activities, such as LunaX.

Stader

Stader is building a middleware infrastructure for staking validation across multiple PoS public chains, adopting a modular approach to attract third-party applications to build various staking solutions on its foundation. Currently, Stader primarily provides liquid staking for LUNA and will expand to PoS public chains like Solana and Ethereum 2.0 in the future.

LunaX is a liquid staking derivative on the Stader platform, similar to aUST, and is a type of auto-compounding accrual token.

Users can stake LUNA on Stader and receive LunaX as proof, then use LunaX as collateral on Edge to borrow UST and LUNA, with part deposited into Anchor and the LunaX-LUNA liquidity pool. They can then use aUST on Mirror to borrow synthetic assets for compounding.

ORCA

ORCA is the first product from the Kujira team, enabling more DeFi users to participate in liquidation arbitrage on the Anchor platform, as ORCA supports liquidation using aUST.

Users can first convert LUNA to bLUNA or LunaX, then borrow UST on Anchor or Edge and deposit it into Anchor. They can then use the aUST proof on ORCA for liquidation arbitrage to enhance their staking returns.

Apollo DAO

Apollo DAO is a yield aggregator on Terra and a community-driven fund organization. The yield strategies on Apollo DAO mainly come from providing liquidity to Astroport, with the earnings automatically compounded and bringing additional income to users in the form of APOLLO Tokens.

What makes Apollo unique is that users can directly deposit UST, and the protocol will automatically convert it into the corresponding LP Tokens and start generating yields.

Apollo's "Farmers Market" is also interesting; it is a launchpad, but unlike others, it uses farming to launch new projects and provide liquidity. Users only need to deposit UST.

Osmosis

Of course, we cannot forget that Terra is also part of the Cosmos ecosystem. Recently, Terra Bridge began supporting asset transfers between Terra and Osmosis Zone, allowing assets like LUNA and UST in the Terra ecosystem to be easily transferred to Osmosis for farming yields.

It is undeniable that the popularization of UST still requires the support of Anchor. However, the development of the Terra ecosystem is gradually breaking away from "unipolarity" and moving towards "one strong and many strong" direction. The construction of more composable applications can not only alleviate the pressure on Anchor but also generate stronger network effects. Therefore, the DeFi development of the Terra ecosystem is also worth our attention.