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Apr 22
Binance Labs Invests in Terra: A Better Payment Network for the Masses

Disclosure: Binance Labs is an investor to Terra and Luna holder. The content provided here is for informational purposes only and does not constitute an offer or solicitation to purchase an investment.

In the past year, we at Binance Labs have seen hundreds of stablecoins emerge in the market. Even J.P. Morgan introduced the first prototype of its blockchain settlement product: JPM Coin, a stablecoin backed 1:1 by their fiat reserves. Many of these stablecoins either aspire to become 1) a new form of money to replace the USD — a brand-new, smarter monetary system, or 2) provide a solution to the industry’s lack of a reliable medium of exchange.

However, we take a step back and find ourselves asking this question — why do we even need a stablecoin? A price-stable cryptocurrency is of no real usage if it is not used to facilitate transactions and only provide convenience in conducting arbitrage between trading venues. Also, price stability is not sufficient to get a new currency widely adopted. And this is exactly why Terra is not just another stablecoin, but a better payment network using a price-stable digital currency to complement both existing fiat and cryptocurrencies — “retaining all the censorship resistance of Bitcoin, and making it viable for use in everyday transactions”. Terra is reimagining the payment network.

Why Binance Labs is Backing Terra

Terra is a next-generation, blockchain-based payment network that adopts a price-stable cryptocurrency as its medium of exchange. Terra’s journey, supported by Binance Labs, is meaningful for the reasons below:

1. Sustainable User Benefits

The entire crypto world has been suffering from poor user experience — unintuitive UI, bad product design, difficulty of private key management were pointed out as huge barriers for the masses to use blockchain or crypto in real life. In other words, the entire user experience was seriously suboptimal compared to the products of the “rest of the world”. However, Terra’s payment journey is not only embedded perfectly into e-commerce platforms by offering convenient fiat onboarding and offboarding, but it also provides attractive discounts for every transaction as an incentive for consumers to switch to Terra. This unique discount mechanism is sustained by the network’s growth, which leads to the algorithmic growth of stablecoin Terra’s supply, which is then returned to users as discounts. Moreover, Terra is able to significantly reduce transaction fees for merchants by removing traditional middlemen like PGs and VAN companies.

2. Strong Adoption

Terra focuses on becoming the first use case of crypto in the mainstream. Terra has built a strong alliance of e-commerce giants with a combined Gross Merchandise Value (GMV) of $25 billion and a customer base of 45 million users, so that Terra could be used all across Asia. To date, it has signed 15 e-commerce partners, including TMON (e-commerce, Korea), Tiki (e-commerce, Vietnam), Pomelo (Fashion, Southeast Asia), Carousell (C2C, Singapore), and Althea (Beauty, Southeast Asia). These partnerships are not just through Terra’s Co-Founder Daniel Shin — the founder of TMON and a well-known entrepreneur in Asia — but made possible because of Terra’s clear value proposition. Even with limited PR, Terra has generated massive demand among e-commerce companies and inbound interest. Terra’s goal is to cover all verticals in a customer’s spending cycle in any given day to truly become a transactional currency. At the very least, we see them becoming the main cryptocurrency that serves as a popular medium of exchange in Korea; at the most, Terra will grow to become the main protocol of money in Asia and beyond.

3. Scalability

Terra has designed a unique dual-token mechanism, where stablecoin Terra is fully collateralized by another native cryptocurrency Luna. It does not require 1:1 match of fiat as collateral, which is one of the most common approaches other stablecoins take. Such an approach requires a highly centralized foundation, and even with audits from third-parties, the public must bestow a high level of trust to these centralized custodians to ensure that the 1:1 balance between stablecoin and fiat is maintained. But we think the bigger issues are around efficiency and scalability; not only is keeping a large amount of money in the bank not a smart use of capital resources, but the size of the stablecoin’s economy is immediately restricted by the size of the fiat economy. The vision of a digital currency must go beyond what the traditional fiat economy has achieved. Terra has designed a truly decentralized, borderless digital currency, and its use case can evolve beyond payments and into other financial products such as credits, microloans, and insurance. Ecommerce and online transactions are just the beginning for Terra as it rethinks money to build an open and global financial infrastructure.

4. Robust Stability

Terra has built an independent Delegated Proof of Stake blockchain on Tendermint, where miners acquire and stake Luna to participate. Luna miners absorb short-term volatility in Terra demand, and in exchange, they receive countercyclical rewards from Terra transaction fees and network growth (for more details, read here). Beyond the protocol layer, Terra will be used in everyday transactions through its e-commerce partners, and its stickiness as a currency will help defend it from any attacks on its price-stability mechanism.

Despite fierce competition, there are many reasons to be bullish about Terra. We’ve seen some stablecoins and payment dApps come from the US, but Terra is not only the largest stablecoin project in Asia, but its unprecedented go-to-market strategy makes it one of the most promising projects in the world. Most importantly, it has a strong, dedicated team made of serial entrepreneurs hailing from Stanford, Wharton, and Harvard with notable experiences such as running one of the biggest e-commerce platforms in Korea, building a decentralized P2P mesh network, and launching top payment systems in Korea.

We at Binance Labs are constantly impressed by Co-Founder Daniel’s leadership and Co-Founder Do’s earnest commitment to the industry. At the end of the day, it will all come down to the team.

We are excited to be part of Terra’s journey of bridging the gap between crypto and real life, and believe that Asia is the perfect launchpad, with its retail investor base growing every day. The mainnet launch is scheduled for April 23, 23:00pm PST, on Terra’s one-year anniversary. And this is just the beginning.

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