Beginner’s Guide: How to Use Terra

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Key takeaways Although still relatively small, Terra’s DeFi ecosystem has one of the most innovative decentralized applications in cryptography. Terra Station is the go-to wallet for users who want to participate and interact with the network. LUNA staking is currently earning over 7% annualized, and the staked asset, bLUNA, can be used as collateral for yield farming through projects like Anchor. Share this article

Terra is a smart contract blockchain protocol and payments-driven financial ecosystem powered by fiat-anchored stablecoins governed by algorithms, scalable and decentralized. Terra’s ecosystem offers an innovative suite of DeFi products, making the protocol worth exploring.

About Terra

Launched in January 2018, Terra is a scalable high-speed blockchain protocol based on the Cosmos SDK. It uses the Tendermint Delegated-Proof-of-Stake (DPoS) consensus mechanism to ensure sufficient decentralization while offering low-cost transactions with fast settlement speeds. What sets Terra apart, however, is not the high performance of the underlying technology, but the thriving ecosystem of innovative and unique user-centric applications that flow from it.

Decentralized applications like Anchor, Mirror, Pylon, Mars and Spectrum have opened up a world of investment and farm yield opportunities on Terra, attracting hundreds of thousands of users and a notable number of developers to the protocol. Additionally, after completing its recent upgrade from Columbus 5, Terra became interoperable with blockchains like Cosmos, Solana, and Polkadot, making its growing ecosystem of DeFi applications more accessible to participants on those blockchains.

Interoperability between the chains also means more utility and higher demand for Terra’s flagship product, the decentralized, algorithm-ruled UST stablecoin. Through bridges like Wormhole and TerraBridge, users can easily move UST between Terra and Ethereum, Binance Smart Chain and most other blockchains, and use it for various purposes in the multi-chain world.

Create and fund a portfolio

Engaging with the Terra ecosystem requires setting up a portfolio.

While there are several options, arguably the best is the Terra Station wallet created by Terraform Labs. It is a non-custodial wallet available as a mobile app, browser extension, and native Windows and iOS app. It offers a user experience similar to MetaMask, although it offers less features like token exchanges in the wallet or NFT support.

Source: Terra Station

Once you have downloaded Terra Station from the official Terra website, follow the few simple steps to create a new wallet. Creating a backup of your seed phrase and storing it in a secure, preferably isolated, environment is paramount here. This is because the seed phrase gives you or anyone else access to your private key, which in turn gives access to your funds. It is therefore essential to write the start sentence on a piece of paper and keep it in a safe place, or to use a more durable solution like titanium.

After creating a wallet, you will need to fund it with LUNA tokens. LUNA is Terra’s native staking token used for governance, mining, and volatility absorption tool for Terra Stables that captures rewards via seigniorage and transaction fees. You need LUNA in your wallet to pay the transaction fees. The easiest way to get LUNA is to buy it through a centralized exchange like Binance, Coinbase, Phemex, or FTX. Once you’ve done that, simply collect the tokens at your Terra Station wallet address, which is at the top of the browser extension or your wallet app.

Alternatively, those with funds on Ethereum can purchase a packaged version of Luna (wLUNA) via Uniswap and transfer it to the Terra Station wallet via the Terra Bridge.

Source: Terra Bridge

Navigating Terra Bridge is quite intuitive: connect your Etheruem wallet to Terra Bridge, select the Ethereum network from the “from” drop-down menu on the left side of the app, choose Terra on the right side, select LUNA from the drop-down list “Active”, set the amount, paste the address of your Terra Station wallet in the “destination address” and click on next. Once you have approved the transaction in your MetaMask, Terra Bridge will automatically exchange wLUNA for LUNA and deposit it to your wallet address on the Terra network. If you have funds on Solana, you can follow the same process to transfer funds only using the Wormhole Bridge.

Explore Terra

So you’ve created and funded your wallet, and now you’re wondering where to go next.

The first thing you might want to do is get the LUNA you purchased to work by staking it on Terra Station. As Terra is a proof-of-stake-based delegated protocol, it relies on a set of 130 validators to verify, clear transactions, and secure the network by running full nodes and committing new blocks to the blockchain. In return for their services, validators and delegators can earn a steady stream of income from transaction fees and seigniorage, which currently stands at around 7.07% for delegators and 7.47% for validators.

To become a validator on Terra, users must either bind their LUNA tokens for at least 21 days and be among the top 130 players, or ask other users to delegate their LUNA stakes. This creates a way for everyone to put their LUNA tokens to work by staking them or delegating them to validators, who will then share a portion of the income they earn with their delegators.

Source: Terra Station

To delegate LUNA, go to Terra Station and select “Staking” from the menu on the left side of the page. When you do this, a new dashboard showing a list of available validators will open. After selecting the validator of your choice by clicking on its name, another dashboard will open, where you can delegate your LUNA by clicking on the “delegate” button.

From there, you’re set and your Bonded LUNA (bLUNA) will automatically increase the yield. However, if that’s not enough and you want to do more, you can use your bLUNA tokens on the Anchor protocol to earn even more returns by borrowing USTs. Anchor pays you to borrow from UST with its native ANC token, and UST can be deposited on the same protocol to earn a fixed interest rate of 19.49%.

Borrowing and lending on Anchor is easy. Go to the app’s “borrow” page, click on the “borrow” button, set the desired loan-to-value ratio and deposit your bLUNA collateral. Once you’ve done that, you’ll have UST in your wallet, which you can use for anything you want, including buying other native Terra tokens on TerraSwap, investing in synthetic stocks, or providing liquidity on Mirror, or grow on Spectrum Protocol.

Getting to know Terra while the ecosystem is still relatively young and developing can give users a serious edge in the wider market. Some of its decentralized applications like Anchor and Mirror have become successful and large enough to even compete with some of Ethereum’s “blue chips”. Terra experienced a breakthrough period in 2021, entering the top 10 cryptocurrencies by market cap as LUNA climbed above $ 100 for the first time. With protocols like Mars, Spar, Loop Finance, and Alice slated for launch in early 2022, Terra is well positioned to continue on its path and see increased adoption going forward.

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies.

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