Terra is a blockchain protocol and payment platform used for algorithmic stablecoins. The project was created in 2018 by Terraform Labs, a startup co-founded by Do Kwon and Daniel Shin. It is best known for its Terra algorithmic stablecoin and the associated LUNA reserve asset cryptocurrency. In May 2022, the Terra blockchain was temporarily halted after the collapse of the algorithmic stablecoin TerraUSD (UST) and the cryptocurrency LUNA, an event that wiped out almost $45 billion in market capitalization within a week. On January 21, 2024, the company filed for bankruptcy.
Design Terra is a blockchain that leverages fiat-pegged stablecoins to power a payment system. For consensus, the Terra blockchain uses a proof-of-stake codesign. Several stablecoins are built atop the Terra protocol, including TerraUSD, which was the third largest stablecoin by market capitalization before its collapse in May 2022. The Terra blockchain has a fully-functional ecosystem of decentralized applications (or DApps), such as Anchor, Mirror, and Pylon, which utilized the stable-coin infrastructure of Terra. Terra is a group of algorithmic stablecoins, named according to the currencies to which they were pegged—for example, TerraUSD (UST) was pegged to the U.S. dollar. LUNA served as the primary backing asset for Terra, also used as a governance token for users to vote on Terra community proposals. UST stablecoins were not backed by U.S. dollars; instead, they were designed to maintain their peg through a complex model called "burn and mint equilibrium". This method uses a two-token system in which one token is supposed to remain stable (UST) while the other (LUNA) is meant to absorb volatility. The Anchor Protocol was a lending and borrowing protocol built on the Terra chain. Investors who deposited UST in the Anchor Protocol were receiving a 19.45% yield paid out from Terra's reserves. Due to such a high yield, some critics raised concerns that Kwon's stablecoin model could function like a "ginormous Ponzi scheme". Mirror Protocol was another Terra chain project, which designed and offered financial derivatives designed to "mirror" traditional listed stocks.
History
In 2018, Do Kwon and Daniel Shin (also known as Shin Hyun-sung) co-founded Terraform Labs in Seoul, South Korea. In 2019, Terraform Labs launched its first cryptocurrency token. Terraform Labs raised more than $200 million from investment firms such as Arrington Capital, Coinbase Ventures, Galaxy Digital and Lightspeed Venture Partners. In January 2022, the Luna Foundation Guard (LFG) was established as a non-profit based in Singapore, with Do Kwon as director. Terraform Labs allocated a portion of the profit from UST sales to Luna Foundation Guard, to be used as reserves to stabilize the price of UST. As of 7 May, just before UST broke its peg, LFG held reserves of 80,394 bitcoin worth approximately $2.4 billion. Bitcoin was the largest portion of the reserve, though LFG also held various other stablecoins and cryptocurrencies. In February 2022, Terra and the Washington Nationals Major League Baseball team announced they had entered into a sponsorship agreement which provided stadium and television branding, as well as the rebranding of the Washington Nationals club and lounge to the "Terra Club". The deal was originally proposed to the Terra community by Kwon, referring only to an unnamed "sports franchise in one of the four major American professional sports leagues", and the community agreed to pay $38.15 million for a five-year exclusive partnership. The founders Kwon and Shin each owned one share of Terraform Labs, giving each founder 50% of the controlling power. Kwon later enlarged his stock pool to eleven shares, giving him 91.7% ownership and Shin the remaining 8.3%. Shin and Chai Corporation, a Terra-ecosystem payment service company that he founded, announced on 18 May 2022 that Shin no longer held any ownership stock in Terraform Labs. However, the Singaporean Account and Corporate Regulatory Authority revealed that Shin still held 8.3% Terraform Labs ownership, and Chai Corporation announced that Shin was not able to "finish liquidating his remaining ownership in time" despite having the same share of ownership as of 18 May. The documents from the Singaporean authority also revealed that as of 18 May, Shin held 51.2% of ownership and Kwon 22.4% of Chai Holdings, the parent company of Chai Corporation.
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