Terra Becomes Second-Largest DeFi Protocol, Surpassing Binance Smart Chain

Over $18 billion in value is locked on just 13 projects on Terra.

AccessTimeIconDec 21, 2021 at 7:37 a.m. UTC
Updated May 11, 2023 at 4:46 p.m. UTC

Decentralized payments network Terra is now the second-largest blockchain for decentralized finance (DeFi) protocols in terms of total value locked (TVL). Terra, which is behind Ethereum, crossed Binance Smart Chain (BSC) this week.

On Terra, 13 projects lock over $18.2 billion in value, data from analytics tool DeFi Llama shows. That’s over $1.4 billion per protocol on average compared with an average of $73 million per protocol on BSC, which has $16.5 billion locked on 225 protocols.

The figures are a nearly 42,000% increase compared to December 2020, when DeFi projects on Terra held $42 million in value.

Ethereum retains the DeFi crown with $152 billion in value locked on 361 protocols. DeFi projects rely on smart contracts instead of middlemen for financial services such as lending, trading and borrowing.

DeFi heats up on Terra

Leading the TVL charts on Terra is Anchor, a savings protocol offering low-volatile yields on Terra stablecoin deposits. Anchor locks over $7.7 billion in value and accounts for 42% of Terra’s TVL. Anchor users accrue rewards through a diversified stream of staked rewards from major proof-of-stake blockchains.

Staked assets liquidity provider Lido is next on the list with over $5.4 billion in TVL. In third place is decentralized exchange (DEX) Terraswap, which has seen its TVL increase over 95% in the past week. Terraswap matches peer-to-peer trades between users using Terra’s smart contracts. All liquidity, as on other DEXs, is contributed by the users themselves, in return for token rewards based on the amount of liquidity they provide for each trading pair.

Terra TVL chart (DeFiLlama)
Terra TVL chart (DeFiLlama)

Metaverse and gaming applications have made their mark on Terra as well. The recently launched StarTerra, which calls itself a gamified launchpad that supports nobn-fungible token (NFT) integration, locks up $21 million in value, while LoTerra, a decentralized lottery, holds over $311,000 in value.

The increase in TVL on Terra coincided with the rising price of its LUNA token. The price is up 54% compared to the past week, trading at all-time highs of $83 on Tuesday morning, as per data from CoinGecko.

LUNA price chart (TradingView)
LUNA price chart (TradingView)

Some attribute LUNA’s success to both its token mechanisms and use in DeFi applications. “Terra has recently been very successful both in terms of its LUNA coin price and the TVL on its DeFi protocols. The demand for the LUNA token mostly stems from the demand for UST, the algorithmic stablecoin on Terra which is minted using (burning) LUNA,” said Adrian Krion, CEO of Web 3 gaming company Spielworks.

“Unlike other layer 1 blockchains, Terra’s TVL isn’t mainly driven by swap protocols but by savings protocols utilizing so-called bonded tokens, native LUNA tokens which participate in the stabilization of the protocol and thereby generate yield,” he said in a message to CoinDesk.

LUNA was one of the strongest-performing cryptocurrencies in the past month even as the broader market tumbled. Bitcoin and ether have traded in a tight range since November 2021, but tokens of Ethereum rivals Solana and Avalanche have seen gains as traders placed bets on them outperforming Ethereum.

Some in crypto circles refer to investing in SOL, LUNA and AVAX as the SoLunAvax trio, and the trade has netted nearly 400% since May 2021 compared to an equally weighted basket of bitcoin and ether in the same time period.

UPDATE (Dec. 21, 08:57 UTC): Adds Spielworks CEO’s comment in ninth and tenth paragraph.


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Shaurya Malwa

Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.

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