protocols

Bison Trails announces support for Terra


Participate in Terra, earn rewards, and help to secure the global payment network by becoming a node operator with Bison Trails

Bison Trails announces support for Terra

By Bison Trails · Jan 12 2021
Last updated: Apr 17 2020

Highlights

  • The Terra protocol is a delegated proof of stake network supported by a variety of fiat-pegged stablecoins, which are algorithmically stabilized by its native asset LUNA.
  • Terra utilizes seigniorage-style stablecoins, with the LUNA earned for the minting of Terra funneled back into validator rewards and to fund fiscal stimulus via the treasury.
  • Optimize your participation on Terra as a node operator by attracting delegation, earning revenue from transaction fees, and submitting price oracle votes.
  • Bison Trails protocol specialists and engineers work closely with Terra, testing network upgrades and running the public Terra validators to support the foundation. Running a Terra node on the Bison Trails platform ensures you’ll be kept up to date on governance proposals and upgrades.



    A Guide to Terra • Navigate to a Section:

  1. The Goal of Terra
  2. Terra's innovation
  3. How Terra works
  4. Terra economics
  5. Slashing on Terra
  6. Why run a Terra node?
  7. Why run Terra nodes with Bison Trails?



The goal of Terra

Terra aims to build a global payment network backed by a price-stable currency and propelled by its blockchain payment solution, with the goal of becoming a more affordable and efficient alternative to e-commerce payment rails. Founded in 2018 by Do Kwon and Daniel Shin, its creation was backed by The Terra Alliance, a group of large ecommerce companies that bootstrapped the payment network and supports the adoption of Terra.

By leveraging the power of blockchain to deliver fast, secure and trusted settlement Terra offers merchants significantly lower transaction fees along with programmable payments and payment infrastructure. At the moment the protocol supports 4 stablecoins (including representations of the USD and the KRW). However, the protocol’s core asset is LUNA, a protocol token that powers stability for the currencies on Terra through seigniorage, secures the Terra blockchain as the native protocol staking asset and enables network participants to exercise governance rights.

LUNA is the lever through which the stablecoins on Terra maintain stability. In an excess demand condition, wherein the value of a Terra stablecoin rises above that of its pegged currency, the system mints the stablecoin and burns an equivalent amount of LUNA.

Conversely, when a stablecoin within Terra is experiencing a lot of selling pressure, the system mints and sells more LUNA in order to buy back and burn Terra—contracting the money supply and diluting LUNA holders.

Stablecoin mechanisms are at the heart of the protocol, as Terra’s goal of becoming a global financial payment network is driven by its use of stablecoins pegged to fiat currencies worldwide, with the network maintaining the steadiness of value needed to enable use for ecommerce.


Terra’s innovation

Terra utilizes seigniorage as its “fiscal policy lever”, funding various activities in the network via its community treasury. Seigniorage is created by Terra’s minting operations as a stimulus for transactions and further serves to facilitate adoption of the network. A portion of this seigniorage goes to the Terra treasury to fund fiscal stimulus via allocating resources to DApps—such as by offering consumer discounts on Terra’s payment DApp CHAI—thus spurring further adoption of the payment system within the consumer market. Another portion of the seigniorage LUNA is sent to node operators as a reward for participating in the network.

Terra rewards validators that secure the network with a share of all the value settled on the network (a transaction fee known as the tax rate). The fee is variable and adjusts according to varying system states, in order to optimize for participation and stability. This is Terra’s “monetary policy lever”. Both core policy levers on Terra are fully programmatic.


Stablecoin minting in the Terra ecosystem

Terra stablecoins are backed by LUNA; in order to mint TerraUSD (UST), one needs to hold or acquire LUNA and conduct an on-chain swap with the protocol that burns the LUNA and mints UST at the current LUNA/USD exchange rate.

Validators in Terra use an oracle module to provide accurate information on the LUNA/USD exchange rate. Validators record and validate all stablecoin transactions (minting and burning) to ensure the Terra ledger’s balances of LUNA and UST are up-to-date.

Terra stablecoins, such as UST, can be deposited in liquidity pools in either Mirror or ANCHOR to earn yields on the assets. Additionally, the movement of Terra stablecoins to Mirror and ANCHOR helps to improve the stability of LUNA on Terra and decrease dilution for LUNA holders.


The Terra ecosystem

A primary adoption driver of the Terra network is its blockchain payment solution, CHAI, a successful mobile payments DApp that utilizes stablecoins on the Terra protocol that enables a seamless payment experience with low transaction fees and built-in ecommerce discounts for users.


CHAI Mobile Interface Source


The Terra ecosystem also includes ANCHOR and Mirror. Mirror is a protocol for synthetic derivatives that launched recently with US equities first. The Mirror protocol is designed to be fully decentralized, with all code changes and on-chain treasury governance conducted by holders of MIR, the protocol’s governance token.

Anchor, a money market and savings protocol on the Terra blockchain, functions as the native lending protocol of the Terra ecosystem. Anchor enables depositors to earn a low-volatility benchmark interest rate via staking a proof of stake asset collateral, called bAssets, allowing for the borrowing and exchange of assets on the Terra network. Anchor launched with a native governance token, ANC, valued at over $5B USD in fully-diluted market capitalization. Aside from its function as a governance token, ANC is designed to capture a portion of the yield that the Anchor lending protocol generates.

LUNA inflation was high for the first two years of the protocol’s existence due to the way seigniorage functions on Terra, with LUNA being minted to maintain the stablecoin pegs. This excess supply state can be largely attributed to the limited utility that stablecoins in the Terra ecosystem had before the launches of Mirror and Anchor; this is no longer the case. Anchor is introducing a high APR incentive (20%) for depositors of UST into the protocol, a lever that reverses the dynamic described above and ultimately makes LUNA deflationary.

Since Anchor’s launch more than 750M UST have been minted, representing an 80% increase. The launches of Mirror and Anchor have made a marked impact on the Terra ecosystem as a whole, driving UST to nearly a 2B market capitalization as the 5th largest stablecoin. The success is expected to lead the launch of more native protocols on Terra; Terraform Labs launched Terraform Capital, a $10M fund dedicated to funding projects that build on Terra and/or integrate UST, mAssets, and other Terra assets in their application logic.

Those who stake LUNA on the Terra protocol now receive dual incentives for participating in the form of both LUNA and MIR. The MIR tokens will be distributed every 100,000 blocks (weekly) according to the amount of total LUNA staked.

As with MIR’s launch, a large part of the ANC will be airdropped to LUNA stakers (15% of the 1B ANC tokens max supply). 33% of this was airdropped to LUNA stakers when Anchor launched, based on a snapshot from block 2,179,600. The remainder will be distributed to LUNA stakers pro-rata over a period of 2 years, distributed approximately every 100,000 blocks (weekly).



How Terra works

Terra operates with a delegated proof of stake consensus algorithm and is a Tendermint-based Layer 1 protocol, built using Cosmos-SDK. Validators must run full nodes in order to participate in the network. There is no required minimum for self-bonding to one’s node, however, the total amount of delegation to a node plus the amount of self-bond determines one’s probability of producing blocks.

The active set of validators are the top 100 validators with the highest total stake (self-bonded + delegators’). Validators may also exercise governance rights over the Terra treasury to help determine how the resources gained from seigniorage will be allocated to DApps within the Terra ecosystem.

LUNA enables the proof of stake mechanism within Terra. Validators must have LUNA staked in order to validate blocks and access transaction fees as a reward for their work. These transaction fees are known within Terra as the Tax Rate, and range from 0.1%-1% for all Terra transactions.

Within each block period the Terra protocol elects a block producer from the active set of validators, who then completes the work of creating the next block by aggregating votes and achieving consensus. The validator then receives a block reward for doing so. In addition to the Tax Rate and block rewards, validators are rewarded via stablecoin swap fees, seigniorage burns, and price oracle rewards.

LUNA is also the lever through which the stablecoins on Terra maintain stability. In an excess demand condition, wherein the value of a Terra stablecoin rises above that of its pegged currency, the system mints the stablecoin and burns an equivalent amount of LUNA. As of February 2021, the tax rate is set at 0.6% of every transaction. The gross amount collected as tax is available on station.terra.money. A validator's pro-rata reward allocation from the tax rate can then be determined based on the validator's stake and overall voting power; for example, given that 9M UST has been collected as tax rate over the last year, a validator with 10% of the network's stake would earn $900,000 on average from fees per annum.

Conversely, when a stablecoin within Terra is experiencing a lot of selling pressure, the system mints and sells more LUNA in order to buy back and burn Terra—contracting the money supply and diluting LUNA holders.

Stablecoin mechanisms are at the heart of the protocol, as Terra’s goal of becoming a global financial payment network is driven by its use of stablecoins pegged to fiat currencies worldwide, with the network maintaining the steadiness of value needed to enable use for ecommerce.

The protocol uses a decentralized price oracle to estimate the true exchange rate of the stablecoins on the network. Miners submit a vote for what they believe the current exchange rate is between the Terra stablecoins and the fiat currencies they are pegged to, the weighted median of the votes is set as the true rate, and LUNA is awarded to those validators who voted within 1 standard deviation of the true rate. Those who voted for an exchange rate outside of the standard deviation may be slashed.

The price oracle also functions to support the adding or deprecating of currencies within Terra; when oracle votes for a particular currency cross a submission threshold the protocol may start supporting that currency, while a lack of oracle votes over the course of a specified amount of time may lead to the currency being deprecated.


Terra co-founders Daniel Shin and Do Kwon
Terra co-founders Daniel Shin and Do Kwon



Terra economics

Initial Token Supply 600M LUNA
Inflation Variable
Maximum Token Supply 1B LUNA
Active Set of Validators Top 100 validators by self-bonded stake and delegation. This may increase to 300 in the future.
Expected Reward Rate Variable, currently at 15% blended per annum (5.6% LUNA staking rewards, 5.63% ANC airdrop rewards, 3.58% MIR airdrop rewards)
Minimum Stake None
Maximum Stake None
Unbonding Period 21 days, no rewards earned during unbonding.
Warm-Up Period None
Delegation Fee 0.001639 LUNA
Reward Compounding Rewards accrue in a pool and need to be withdrawn and re-staked to compound.
Reward Payout Frequency Rewards accrue per block and are paid out when called.
Passive Distribution Validators and delegators will have to manually collect their rewards by submitting withdrawal transactions. Each validator has the opportunity to charge commission to the delegators on the rewards collected on behalf of the delegators.
Redelegation Delegators can change their validator without having to unbond. A maximum of 7 redelegations per account can take place at a time. Each redelegation happens instantly, but the same stake can only be redelegated again after one unbonding period.


Validators are rewarded for their work in Terra via the tax rate, a form of transaction fee, and potentially in the future via block rewards, a result of programmatic inflation that is currently not activated. Participants can also be rewarded via stablecoin swap fees, seigniorage burns, and price oracle rewards if they participate in those processes.

Those who stake LUNA on the Terra protocol now receive triple incentives for participating in the form of LUNA along with MIR, the native token of Mirror, and ANC, the native token of Anchor. The MIR tokens will be distributed every 100,000 blocks (weekly) according to the amount of total LUNA staked.

As with MIR’s launch, a large part of the ANC will be airdropped to LUNA stakers (15% of the 1B ANC tokens max supply). 33% of this was airdropped to LUNA stakers when Anchor launched, based on a snapshot from block 2,179,600. The remainder will be distributed to LUNA stakers pro-rata over a period of 2 years, distributed approximately every 100,000 blocks (weekly).

With this in mind, the gross estimated reward rate for staking LUNA stands at a blended 15% per annum, with 5.6% attributed to LUNA staking rewards, and 5.63% and 3.58% to the ANC and MIR airdrops, respectively.

Terra rewards validators that secure the network with a share of all the value settled on the network. These transaction fees are known within Terra as the tax rate, and range from 0.1%-1% for all Terra transactions. As of February 2021, the tax rate is set at 0.6% of every transaction. The gross amount collected as tax is available on station.terra.money. A validator's pro-rata reward allocation from the tax rate can then be determined based on the validator's stake and overall voting power; for example, given that 9M UST has been collected as tax rate over the last year, a validator with 10% of the network's stake would earn $900,000 on average from fees per annum.

The inflation of LUNA has two aspects: programmatic inflation as block rewards from the protocol, and inflation due to LUNA minting related to seigniorage.

The programmatic inflation of LUNA, currently not an active feature, is a function of the transaction volume within Terra and the rate of value capture as expressed by transaction fees per LUNA staked. The module is optional, meaning that governance can introduce programmatic inflation if the community votes to do so, but was set to 0 at genesis and currently remains at 0.

The minting conducted to regulate the Terra stablecoin supply is what generates the inflation related to seigniorage.

Terra functions with a delegated proof of stake model, and, as having delegators stake their LUNA to one’s validator increases the validator’s total stake, delegation increases the likelihood of being selected to perform block validation and to earn block rewards.

Validators can optimize their rewards by both self-bonding a higher portion of LUNA, thus showing delegators that the validator has more personal risk at stake in their operation of the node, and also by choosing an attractive commission rate, or the commission applied on rewards by validators before it is distributed to their delegators.


Slashing on Terra

Validators within the Terra protocol are at risk of loss due to slashing as a result of poor behavior, and other validators can submit evidence of a slashable offense. There are three primary slashing conditions:

  • Double signing: 5% of a validator’s total stake (at the time of the offense) can be slashed for signing two different blocks with the same chain ID at the same block height.
  • Downtime: a validator being non-responsive for more than 95% of any consecutive 10,000 block interval (~17.7 hours) can lead to a slashing of 0.01% of the validator’s total stake, along with an exclusion from the active stet for 10 minutes (referred to within Terra as a Jail Penalty).
  • Missed oracle votes: a validator that fails to meet a minimum threshold of votes that fall within the weighted median of the price oracle (a minimum of at least 5% of oracle votes per window) can be slashed 0.01% of the validator’s total stake.

Why run a Terra node?

  • Participate in the network: operating a full node in Terra is the only way to earn full block rewards and participate in governance.
  • Additional rewards: Terra node operators who stake LUNA not only receive rewards in the form of LUNA in exchange for securing the network, but also receive air-dropped MIR, the governance token for the Mirror network, distributed on a pro-rata basis on the amount of LUNA owned-stake. There will likely be more opportunities such as this as the Terra ecosystem continues to evolve.
  • Access transaction fees: only Terra node operators can access the transaction fees charged for every transaction on the Terra network, as a reward for participating in securing the network and staking LUNA.
  • Earn delegation rewards: as a Terra node operator, you can accept delegations by setting a variable commission rate for delegators, optimizing your total stake for inclusion in the active set, voting on governance, and enabling stablecoin swaps.
  • Secure the network: as a Terra node operator, you play a key role in securing the network and ensuring its long-term stability and growth.

Why run Terra nodes with Bison Trails?

  • Protocol relationships: Bison Trails protocol specialists and engineers work closely with Terra, testing network upgrades and keeping you up to date on governance proposals. Bison Trails runs the public Terra validators to support the foundation.
  • Optimized participation: Bison Trails’ protocol operations monitors the changing state of the network’s validators and protocol updates, and advises on optimal participation strategies.
  • 99% uptime guarantee: help to protect your Terra full node from one of the primary slashing conditions on the network with Bison Trails’ 99% uptime guarantee.
  • Validator management: ensure that your Terra node stays active and secure with multi-cloud/multi-regional distribution, enterprise grade security management, and real time data & analytics.
  • Oracle service management: ensure that your Oracle module provides the Terra blockchain with an up-to-date and accurate price feed for exchange rates of Luna against various Terra pegs, so that the market may provide fair exchanges between Terra<>Terra currency pairs, as well as Terra<>Luna.
  • Terra QT: QT by Bison Trails makes it easy to have secure, highly available access to read/write node infrastructure on the Terra protocol, designed for companies and entrepreneurs building secure Web 3.0 applications.

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About Bison Trails


Pioneering Blockchain Infrastructure®

Bison Trails is a blockchain infrastructure platform-as-a-service (PaaS) company based in New York City. We built a platform for anyone who wants to participate in 23 new chains effortlessly.

We also make it easy for anyone building Web 3.0 applications to connect to blockchain data from 33 protocols with Query & Transact (QT). Our goal is for the entire blockchain ecosystem to flourish by providing robust infrastructure for the pioneers of tomorrow.

In January, 2021, we announced Bison Trails joined Coinbase to accelerate our mission to provide easy-to-use blockchain infrastructure, now as a standalone product line. The Bison Trails platform will continue to support our customers. With Coinbase’s backing, we will enhance our infrastructure platform and make it even easier to participate in decentralized networks and build applications that connect to blockchain data.



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