Terra’s plan for a blockchain PayPal alternative gets $32m from top crypto exchanges

Mainstream adoption. It’s the most significant challenge faced by cryptocurrencies. As cynics are wont to say: It’s all very well to have dozens of different digital tokens sitting in your digital wallet, seesawing in supposed value. But what’s the point if you can’t actually use them to buy anything?

Many a startup has claimed to be the one that will make cryptocurrency go mainstream and turn tokens into an everyday payment method.

Terra arguably stands out from the crowd, if only because of the amount of funding it has raised and the investors it has on board. Big-name partners have also signed up to its crypto-payment solution, which Terra bills as a blockchain-based replacement for the likes of PayPal and Alipay on online stores.

We are designing our product so that [shoppers] won’t even realize that they are paying with cryptocurrencies.

“We strongly believe that paying with cryptocurrencies shouldn’t be different from any other checkout experience, if not more convenient,” Terra co-founder Daniel Shin told Tech in Asia. “We are designing our product so that when people select Terra as a payment option at checkout, they won’t even realize that they are paying with cryptocurrencies.”

The South Korea-based startup – which is pushing for its crypto-based payments system to be adopted by ecommerce portals – has secured US$32 million in seed funding from a roster of prominent investors.

Among them are the venture capital arms of four of the world’s six biggest cryptocurrency exchanges by trading volume: Binance Labs, Huobi Capital, OKEx, and Dunamu & Partners – an affiliate of Upbit operator Dunamu.

Several blockchain-focused VC firms joined the round, including Polychain Capital, FBG Capital, and Hashed. More traditional VC players like TransLink Capital also participated.

Terra did not say what portion – if any – of the funding resulted from the sale or commitment of tokens when asked by Tech in Asia. However, the startup said it would be using the seed capital to launch a “price-stable” cryptocurrency, also named Terra, which will be the basis of its payments platform.

The stablecoins will save themselves

The Terra token is a “stablecoin” – a digital currency designed to avoid the wild price fluctuations and investor speculation that have come to be seen as hallmarks of mainstream cryptocurrencies like Bitcoin and Ether.

For many prospective users, this volatility makes Bitcoin, Ether, and other tokens unsuitable for everyday uses like online payments.

Stablecoins are directly backed by an underlying asset. These assets can include fiat money, gold, or other cryptocurrencies. One of the most widely recognized examples is Tether, which is meant to be pegged to the US dollar.

This is designed to protect stablecoins from hemorrhaging value in the same way Bitcoin and other mainstream tokens have. (From its December 2017 high of US$20,000 per 1 BTC, Bitcoin was trading at around US$7,000 at time of writing.)

According to Shin, Terra coins will be backed by “a decentralized stability reserve” comprising a second cryptocurrency.

“Terra uses a dual-token system, which is composed of Terra – the stablecoin – and Luna the collateral token,” he explained. “When demand and price of Terra goes up, we can print more Terra to bring the price back down.”

Some of this new supply will be returned to users in the form of discounts, giving them an incentive to pay with Terra.

“On the other hand, when demand goes down and the price of Terra drops, we need to be able to buy back Terra and burn it,” noted Shin.

The startup will use its stash of Luna coins to purchase Terra in order to maintain solvency in the ecosystem, he said.

Our goal is… to hit $150b in annual sales by 2022.

Luna tokens, in turn, derive their value from transaction fees charged to users of the Terra payments system. “While the protocol itself doesn’t look to make revenue, [the Terra Foundation] holds a certain amount of Luna in its stability reserve,” Shin said. “As Terra’s transaction volumes increase, the transaction fees paid to Luna holders will also increase. This is similar to how the Visa network [works] – it’s worth almost US$290 billion because the total network value increases as more users enter.”

The startup is working with financial services providers to try to ensure that “customers can choose between easily converting fiat into Terra stablecoins directly on our platform, or purchasing Terra on cryptocurrency exchanges of their choice,” Shin added.

Big-name partners

Terra’s viability will depend on its adoption by online stores, and regular use by online shoppers. The startup claims that it has already made some major steps in this regard.

Shin himself is a veteran of South Korea’s ecommerce industry, having previously served as CEO of Tmon – the ecommerce site that started out as ticketing portal Ticket Monster.

Tmon is one of several ecommerce platforms to have joined the Terra Alliance – a group that has committed to introducing Terra as a payments option on their sites. Other companies such as Carousell, Pomelo Fashion, Qoo10, and Tiki in Southeast Asia, as well as Althea and Woowa Brothers in South Korea, have also signed up.

In total, Terra has 15 global partners in the Alliance, with 40 million customers and US$25 billion in annual sales between them. “Our goal is to grow the alliance to hit $150 billion in annual sales by 2022,” Shin said.

He claims that Terra’s blockchain-based system can provide more secure transactions for ecommerce sites, at a fraction of the fees they currently pay to credit card companies and other payments providers.

“If an ecommerce partner is annually paying over US$125 million in just credit card transaction fees, Terra can help that partner save US$100 million,” he pointed out. “Additionally, since Terra’s model inherently includes customer discounts, we expect immediate sales lift and market share gains for participating platforms.”

Shin says that Terra will be beta-testing its payment system in Q4 2018, with an official launch on Tmon slated for the end of the year.

Arrington XRP, Kenetic Capital, and 1kx were among the other disclosed investors to take part in Terra’s seed round.