Under the Overturned Nest, No Eggs Remain Intact: Where is the Road Ahead for Terra Ecosystem Projects?

A Sudden Thunderstorm

In April 2022, Terra was still a public blockchain with a market value of $41 billion, carrying many beautiful visions. However, within just one month, its native algorithmic stablecoin UST experienced de-pegging due to capital manipulation and inherent mechanism flaws. This led to Terra's market value plummeting from $41 billion to $1.2 billion (as of May 17), a 97% drop. When UST de-pegged, Terra's Total Value Locked (TVL) also collapsed from $21 billion to $300 million within a week. Under the overturned nest, no eggs remain intact. Projects that once flourished under Terra's umbrella saw their TVL fall from $21 billion to $300 million in just a week. How can Terra ecosystem projects break the deadlock? Will they fight for survival or disappear entirely?

In a previous article, The Fall of the Lunar Goddess, we detailed the collapse's timeline and subsequent impacts. In this piece, we will focus on the status of Terra ecosystem projects after the incident, assessing whether their teams are actively addressing issues and exploring their future paths.

The Future of Terra Ecosystem Projects

Astroport

Astroport, the leading DEX on Terra, was deeply integrated with the Terra chain, primarily facilitating transactions of Terra ecosystem projects. Consequently, Astroport's TVL and trading volume were significantly impacted by the UST crisis.

TVL: According to Defillama.com, Astroport’s TVL was approximately $1.26 billion on May 9, before the UST collapse. Following this, it plummeted to $23 million by May 15—a more than 50-fold drop. This reflects how Terra ecosystem projects, beyond just LUNA and UST, suffered severe losses. Projects like Mirror, Anchor, and Astroport faced repeated declines.

Trading Volume: According to Coingecko, trading volume surged from $350 million on May 9 to $1 billion on May 11, before collapsing to $16 million by May 13—just 1/20 of its pre-crisis volume. Initially, speculators and arbitrageurs flooded Terra, causing a brief spike in trading activity. However, the platform quickly fell silent amid the deepening crisis.

Astroport’s team has not publicly disclosed their identities. On May 11, they issued a statement calling on the community to discuss the project’s next steps and ways to rescue the Terra ecosystem. However, given Astroport’s heavy reliance on Terra’s liquidity, its competitive edge as a DEX is in jeopardy. Even if migrated to other chains, Astroport faces tough competition in a market with low technical barriers.

Anchor Protocol

Anchor, Terra’s largest stablecoin lending protocol, provided depositors with annualized yields of up to 20% through loan interest and staking returns. Borrowers could collateralize LUNA, ETH, and other assets to borrow UST. Anchor played a key role in Terra’s rapid TVL growth by offering stable returns.

Before UST de-pegged, Anchor’s lending rates were already abnormal. Loan interest rates turned negative, and the system reduced rates to encourage borrowing, yet the actual borrowing rate remained low. After UST de-pegged:

Users withdrew UST deposits en masse for conversion.

LUNA's plummeting price triggered bLUNA liquidations, creating a vicious downward spiral. TVL fell from 14 billion UST to 1.39 billion UST (as of May 16), a sharp decline.

Anchor supports collateral assets like bLUNA, bETH, wasAVAX, and bATOM across multiple chains. However, after UST de-pegged, investors began withdrawing these assets as well:

bETH TCV: $59.65M

wasAVAX TCV: $5.05M

bATOM TCV: $2.21M

bSOL TCV: $3,391

The mass withdrawals reflect investors' lack of confidence in Anchor’s recovery. The Anchor team, backed by Terraform Labs, did not immediately reassure investors. Instead, they merely announced on Twitter that the blockchain had been paused and called for users to cease interactions. Discord servers were locked, leaving users to voice complaints on Twitter.

Anchor’s primary issue lies in its low borrowing rates, leading to inefficient capital utilization and reserve depletion. Although the community had explored solutions in March (e.g., semi-dynamic deposit APYs, transitioning to Anchor v2), UST de-pegging derailed these efforts. For Anchor to survive, rebuilding investor confidence and fixing its unsustainable model are crucial.

Mirror Protocol

Mirror Protocol is a decentralized synthetic asset trading platform on Terra. It enables trading of assets like mTSLA, which mirrors Tesla stock prices. Like Anchor, Mirror was pivotal in expanding UST use cases.

In late 2021, Mirror faced rumors of an SEC investigation, leading to a steady decline in TVL. The UST crisis dealt a severe blow:

Mirror relies on oracles to track real-world stock prices, adjusting collateral ratios accordingly. However, with UST severely de-pegged, synthetic asset prices on Mirror deviated significantly—premiums exceeded 40%.

The Mirror team, backed by Terraform Labs, has been silent since May 5. Its Discord server has been inaccessible since May 11. Regulatory pressures and UST de-pegging suggest Mirror will remain inactive in the near term.

Mars Protocol

Mars, another lending protocol in Terra’s ecosystem, is a collaborative project by Terraform Labs, Delphi Labs, and IDEO CoLab. Unlike Anchor, Mars aimed to support a broader range of tokens and introduced credit line functionality for protocol-approved projects.

Mars fared slightly better during the UST crisis:

Most of its TVL came from users locking UST during the Lockdrop phase, resulting in relatively smaller losses.

As UST de-pegging began, Mars promptly halted lending services and allowed users to withdraw locked UST early through emergency measures.

However, allowing UST withdrawals reflects the team’s lack of confidence in rebuilding Terra. By unlocking UST, Mars forfeited potential new LUNA distributions tied to UST holdings, diluting the protocol's foundational value.

Nexus Protocol

Nexus Protocol, a yield strategy platform, primarily focused on Anchor’s bLUNA products. Its key innovation was utilizing oracles to optimize users’ borrowing ratios and avoid liquidation.

UST’s collapse caused LUNA’s value to approach zero, erasing Nexus’ TVL:

TVL dropped from a peak of $153M to just $500K.

Technical issues during Terra’s network instability led to node desynchronization, rendering liquidation prevention mechanisms ineffective. Approximately $600K in assets were liquidated.

Despite these setbacks, Nexus’ innovative design and independence from Terraform Labs give it a chance to pivot to other chains.

Orion Money

Orion Money, a cross-chain stablecoin bank, bridges stablecoins from various chains to Anchor for fixed income. Orion saw its TVL drop from $75M to $15.96M by May 16, with most stablecoin assets withdrawn.

The team actively addressed investor concerns, emphasizing efforts to minimize losses. However, Orion’s reliance on Anchor leaves its future uncertain.

Prism Protocol

Prism Protocol, once hailed as Terraform Labs' most innovative product, allows users to split assets into principal (pLUNA) and yield (yLUNA). With LUNA’s near-zero value, Prism has been devastated:

TVL plummeted from $500M to just $87.

On May 13, the team stated that Prism does not depend on UST and could support other assets. Discussions about migrating to other chains are ongoing.

Pylon Protocol

Pylon Protocol introduced future-yield-based IDOs, relying heavily on Anchor and UST. Following UST’s collapse, TVL dropped from $240M to $5.4M. The team is exploring contract migration options but has not provided updates.

Terra Name Service

Terra Name Service (TNS) converts Terra’s long, unreadable addresses into personalized .UST domains. TNS tokens fell from $0.20 to $0.014 after the UST crisis. No recovery plans have been announced.

Conclusion

The UST death spiral led to the collapse of the entire Terra ecosystem. On May 14, Terra founder Do Kwon proposed a revival plan to fork the chain and protect the community. The plan, which includes redistributing new LUNA tokens, remains controversial. Meanwhile, competitors like Polygon and Juno are actively courting Terra projects, offering resources for migration.

On May 17, Do Kwon proposed another plan to fork the chain without UST. Regardless, Terra’s ecosystem has suffered irreparable damage, and its recovery seems unlikely.