Terra Echosystem

The Terra protocol is the leading decentralized and open-source public blockchain protocol for algorithmic stablecoins. Using a combination of open market arbitrage incentives and decentralized Oracle voting, the Terra protocol creates stablecoins that consistently track the price of any fiat currency. Users can spend, save, trade, or exchange Terra stablecoins instantly, all on the Terra blockchain. Luna provides its holders with staking rewards and governance power. This protocol consists of two main tokens, Terra and Luna. Terra refers to all stablecoins that track the price of fiat currencies. Users can mint new Terra if they burn Luna. Luna is the Terra protocol’s native staking token which absorbs the price volatility of Terra. Users can delegate Luna to validators in exchange for rewards from transaction fees. The more Terra is used, the more Luna is worth.

Validators

In Terra blockchain mining are carrying out by validators. They maintain the security and accuracy of the blockchain. Validators run programs called full nodes which allow them to verify each transaction made on the Terra network. Validators propose blocks, vote on their validity, and add each new block to the chain in exchange for staking rewards from transaction fees. Users can delegate their Luna to validators to receive staking rewards. Validators also play an important role in the governance of the Terra protocol.

Stakers

Delegators or Stakers are users who want to receive rewards from consensus without running a full node. Any user that stakes Luna is a delegator. Delegators stake their Luna to a validator, adding to a validator’s weight, or total stake. In return, delegators receive a portion of transaction fees as staking rewards.

Rewards in Terra Blockchain

The Terra protocol incentivizes validators and delegators with staking rewards. Staking rewards come from two sources: gas and swap fees. All transactions on Terra network incur a gas fee. If transactions involve stablecoins an additional fee will be charged. The fees charged for different types of transactions.

Market swaps between stablecoins fees= (Gas+Tobin tax)

Market swaps between stablecoins and Luna fees= (Gas+Spread) (This is also called Native Swaps)

All other transactions only incur the gas fee.

At the end of every block, transaction fees are distributed to each validator and their delegators proportional to their staked amount. Validators can keep a portion of rewards to pay for their services. This portion is called commission. The rest of the rewards are distributed to delegators according to their staked amounts.

Gas

Gas is a small computational fee that covers the cost of processing a transaction. Gas is estimated and added to every transaction in Terra Station. Any transaction that does not contain enough gas will not process. Gas on Terra works differently than it works on other blockchains:

•Validators can set their own minimum gas fees.

•Most transactions will estimate more than the minimum amount of gas, ensuring the transaction gets completed.

•Unused gas is not refunded.

•Transactions are not queued based on gas amounts, but in the order received.

Tobin tax

The Tobin tax is a fixed percentage fee added to any market swap. When stablecoins have different Tobin tax rates, the higher tax rate will be used for the transaction. The Tobin tax was created to discourage front-running the oracle and foreign exchange trading at the expense of users.

Spread fee

Spread fees are added to any market swap between Terra and Luna. The minimum spread fee is .5%. During times of extreme volatility, the market module adjusts the spread fee to maintain a constant product between the size of the Terra pool and the fiat value of the Luna pool, ensuring stability in the protocol. As the pools reach constant product equilibrium, The spread rate returns to a normal value.

The following two graphs compare the amount fee for both Native Swaps and non-Native Swaps on monthly and daily bases.

Relation between transaction volume and fees paid to stakers

The amount of fee for each transaction depends not only on volume of transaction but also the nature of transaction (i.e., between stablecoins or stablecoins and Luna). The Tobin tax for most of transaction between stablecoins are 0.35%, however for some of others this might differ. In addition, the volatility of market can also affect on calculated Spread fee where transaction is between a stablecoin and Luna. On the other hand, we have Gas fee which can be slightly different between different validators. In brief, the fees paid to stakers are calculated as a percentage of transaction volume. As a result, it can be stated that as transaction volume increases, the fees paid to stakers increase.

Conclusion

As it is shown in the two above graphs, the paid fees for Native Swaps are less than non-Native Swaps. So, it can be concluded that the volume and number of non-Native Swaps are significantly greater that Native Swaps. These results confirm the aforementioned fact that the nature of transaction can affect on amount fee which validators and delegators receive as reward.