Terra starts year as top-two DeFi ecosystem, beating Binance Smart Chain

Terra (LUNA) has become the world’s second-largest DeFi ecosystem behind Ethereum, with reported total value locked (TVL) of $18 billion.

Meanwhile, US Securities and Exchange Commission (SEC) lawyers have recommended enforcement actions against its founding company, Terraform Labs.

Terra eclipsed Binance Smart Chain’s TVL in late December, an impressive feat given Binance’s native token BNB boasts an $85-billion market capitalization — nearly three times LUNA.

LUNA’s boosted TVL is mostly the result of recent surges in its token price, up more than 40% since the beginning of December.

The amount of staked LUNA tokens has practically flatlined over the past five months, according to ecosystem tracker DeFi Llama.

In any case, the top-two protocols on Terra are the $10-billion algorithmic stablecoin UST, and Anchor Protocol’s $3 billion Savings-as-a-Service SDK.

Terraform Labs is also launching a decentralized exchange (Astroport) and a credit lending platform (Mars Protocol).

Still, Ethereum remains the largest DeFi ecosystem, but deployments of Ethereum-based protocols have slowed. DeFi developers frequently cite high gas fees as a major reason for avoiding Ethereum.

Terra’s algorithmic stablecoin is a gambit

Terra has many critics. Its entire ecosystem is predicated on its algorithmic stablecoin, UST, maintaining its one-to-one peg with the US dollar.

The vast majority of the stablecoin industry uses asset backing, as algorithmic stablecoins have historically failed to keep their peg.

Ultimately, Terra is advancing a speculative alternative to well-known stablecoins like Tether (USDT), Circle’s USDC, Binance USD (BUSD), and Gemini Dollar (GUSD).

Others criticize Terra’s need for consistent capital inflows to support its valuation.

Terra’s LUNA, which helps UST maintain its dollar-value, has a total supply of 871 million tokens.

Of those, 371 million are circulating, about 43% of the supply, including 115 million liquid (circulating and not staked) tokens — equal to 13% of all LUNA.

• Terra creator Terraform Labs in South Korea owns the remaining 462 million LUNA (53%).
• That includes a 150-million LUNA “stability reserve,” roughly 17% of the supply.
• The rest of Terraform Labs’ LUNA is held for discretionary use: paying staff, improving the resiliency of the Terra network, or whatever lead brain Do Kwon decides to do.

Terraform Labs and its chief exec Kwon currently face an SEC probe into whether Terraform Labs’ Mirror Protocol (part of Terra’s DeFi ecosystem) sells unregistered securities.

Mirror Protocol allows users to create synthetic, “mirrored” versions of regulated securities like Amazon and Tesla stock.

In a conversation on September 15, 2021, SEC attorneys advised Kwon’s lawyers that “some sort of enforcement action was warranted against Terraform Labs.”

Look, UST and MIM are solid ponzis and I respect that. You can make good money off them for sure. But they are not built for resilience and they are going to 0 once the market turns for real

Now stop trying to scam users looking for actual stability into being ur exit liquidity

— Rune (@RuneKek) January 4, 2022

Read more: [FATF says ‘stablecoin’ is just a marketing gimmick in latest crypto guidance]

Kwon is a South Korean citizen residing in Singapore. Legal filings locate Terraform Labs’ headquarters also in Singapore.

Terraform Labs filed its own lawsuit claiming that the SEC improperly served Kwon with subpoenas at the Mainnet 2021 summit in New York.

Kwon alleges that delivering the subpoena in a public place violated SEC protocols, rendering his subpoena improper.

The SEC sub-contracted Cavalier Courier & Process Service to deliver the subpoena to Kwon. Attendees saw the process server handing the subpoena to Kwon near an elevator at the venue.

Onlookers quickly took to social media to post about the incident. So far, the SEC has not publicly announced any formal enforcement.

Looking for bite-sized news? We’re on Twitter.