Why We Invested: Terra
Stablecoins have long appealed to us as one of the most compelling use cases for cryptocurrency. If a crypto-asset could promise long-term…
Stablecoins have long appealed to us as one of the most compelling use cases for cryptocurrency. If a crypto-asset could promise long-term price stability, it’d be much more usable than ever-volatile Bitcoin and Ethereum as both a medium of exchange and a store of value. A reliable stablecoin would have many immediate use cases (including remittance and hedging against fluctuations in local fiat currency) and in the long term could serve as an essential element in smart contract-based financial services.
At the same time, the risks and challenges inherent to any stablecoin project seemed immense. Central banks often fail to preserve the stability of their currencies, so what chance would an upstart software project have? Moreover, even if someone designed a perfect stablecoin, who would use it instead of tried-and-true, easy-to-use fiat currency? These questions gave us pause about investing in any stablecoin project. That is, until we spoke with Terra co-founders Daniel Shin and Do Kwon.
Terra was founded with the bold idea that with the right mechanism, widespread adoption could beget stability, making these seemingly separate objectives into two sides of the same coin. Without delving into the nitty-gritty details, each transaction made using Terra’s stablecoin incurs a small fee (much less than that of a typical credit card transaction) which is passed on to holders of Terra’s second native token, Luna. These tokens are held by Terra’s Treasury and its miners, meaning that more transaction volume creates more miner demand (making it more expensive for a malicious actor to attack the network) while simultaneously giving the Treasury more resources to protect its currency and fund discounts for Terra users on purchases they make using Terra’s stablecoin. It’s a clever self-reinforcing mechanism that in many ways mirrors how the most successful credit card networks and digital payment services built their businesses.
To kickstart this flywheel, Terra’s team has focused from day one on making its network useful and convenient for the average consumer. The cornerstone of Terra’s go-to market strategy is the Terra Alliance, a group of top Asian consumer platforms that have committed to supporting Terra’s initial adoption including Korean ridesharing platform Kakao Mobility, Singapore-based classifieds platform Carousell, and Vietnam’s leading e-commerce platform TiKi. Collectively, Terra Alliance members represent more than 50 million users spanning 10 countries, and process more than $50 billion in annual GMV.
Furthermore, to make transacting with Terra’s stablecoin as easy as using Venmo or Alipay, Terra powers a mobile payment app called CHAI. Mainstream consumers simply add their bank account to CHAI to pay, and Terra’s blockchain technology and stablecoin economy seamlessly happens in the background. There is no need for users to worry about private keys or to sign up at a decentralized exchange, which are big hurdles for mass adoption of cryptocurrencies (Here’s a short video on how CHAI works).
Terra then integrated CHAI into the payment checkout of some of its Terra Alliance members (including e-commerce platform TMON and music-streaming service Bugs) so that consumers can use CHAI to make everyday purchases. In just 4 months since launch, CHAI already has more than 450,000 users and has processed more than $40 million in cumulative transaction volume. This growth trend will continue as CHAI integrates with more partners from the Terra Alliance.
By end-of-year, CHAI will launch offline payments with CU, Korea’s largest convenience store chain with 14,000 locations. In total, Terra aims to reach an annual run rate of $1 billion in transaction volume by the end of 2019, making it one of the actively used stablecoins in existence.
Perhaps most excitingly, CHAI has partnered with BC Card, Korea’s largest payment processor, to launch a CHAI debit card by early 2020. The CHAI card will be accepted at BC Card’s 3 million+ affiliates in Korea, with plans to expand globally. This means that CHAI and Terra’s blockchain payments network will be accepted virtually everywhere in Korea.
We knew Dan, Do, and the other Terra team members were uniquely positioned to build Terra into one of the leading stablecoin systems in the world. Dan previously founded TMON and led it to become one of the largest e-commerce platforms in Korea ($3.5 billion of annual GMV), so he knew firsthand the payment-related pain points that e-commerce platforms and their customers face. Do previously founded and led a wireless mesh network startup that was building one of the most sophisticated decentralized applications in real world use, so he understood the intricacies of building decentralized systems. Do and Dan have assembled an impressive team that brings complementary skills in mathematics, economics, law, and business development.
We are thrilled to be investors in a platform that will serve as a digital store of value and medium of exchange for millions of people, and we’re excited to see how Terra will become a platform for broader financial services in the future. If you happen to be based in Korea, we hope that you sign up for CHAI, and if you work in a business that receives digital payments, we encourage you to get in touch about joining the Terra Alliance.
— Fady Yacoub, Victor Wang, and Paul Quigley