Thread by @CosmosClub_

The people of #cosmos have spoken and as promised a 🧵 on the Kujira (@TeamKujira $KUJI) vs the Terra (@terra_money $LUNA $LUNC) ecosystems.

What are the similarities between #Kujira and #TERRALUNA?

How do they differ?

And how to avoid getting rekt!!?

https://twitter.com/CosmosClub_/status/1559140626549116928

Kujira and Terra are often compared.

And for good reasons:

➡️ Kujira has $KUJI, Terra has $LUNA $LUNC
➡️ Kujira has $USK, Terra has $UST $USTC
➡️ Kujira has ORCA, Terra has Anchor
➡️ Kujira is building a wallet, Terra has Terra Station

You get the idea...

If not for the similar ecosystems, Kujira even originates from the Terra blockchain.

With the meltdown of $LUNA and $UST though, Kujira moved on to build their own layer 1 protocol based on #Cosmos.

More on Kujira below👇

@TeamKujira $KUJI #Kujira

https://twitter.com/CosmosClub_/status/1557667870158585857

So how is Kujira and Terra different?

And how do you avoid getting rekted with Kujira like you might have been rekted with Terra?

Generally speaking the answer boils down to how the two ecosystems protects their stablecoin's peg to USD.

After Terra’s algorithmic stablecoin $UST and its stabilizer token $LUNC (then called $LUNA) fell into a death spiral wiping out billions of dollars of investor money, Kujira moved to develop on the Cosmos protocol.

Kujira stated:

“We rebuilt Kujira from the ashes of Terra Classic’s collapse. We understand just how important it is to handle a stablecoin correctly by pursuing transparency, community involvement, sustainable governance, while focusing on adoption and tangible value.”

Kujira has designed $USK to maintain its price stability by a combination of overcollateralization and trading incentives.

The stablecoin is set to be “soft-pegged” to USD, allowing the exchange rate to deviate within a range versus a hard peg to $1.

Similar to $DAI, $USK is over-collateralized, meaning that the treasury will hold more digital assets in value than the market cap of the stablecoin.

The backing asset will initially be Cosmos’ native token $ATOM, with the team planning to add $KUJI

So what's the difference between $USK and $DAI you may ask.

Kujira intends for $USK to be resistant to censorship, and with that $USK treasury will not hold Circle’s $USDC to “avoid being easily censorable.”

For a stablecoin not to hold $USDC in treasury is a statement...

Being censorship-resistant is a hot topic these days with the recent news of the US Treasury banning privacy-focused crypto-mixing service Tornado Cash (@TornadoCash), with Circle subsequently moving quickly to freeze the blacklisted addresses that interacted with Tornado.

So why does Kujira think $USK $KUJI will NOT end up creating a death spiral like #TERRALUNA?

👉 Proved PMF through Anchor liquidation queue
👉 Use "trusted" @MakerDAO model incl. use of CDP smart contracts
👉 Additional $ATOM value
👉 More flexible programming language (Rust)

A key question here is how to maintain / defend peg when using $ATOM as collateral.

How can $ATOM ensure this?

$ATOM has deep liquidity thus we can reasonably assume the collateralized $ATOM could be used to buy-back $USK and thus theoretically "guarantees" it's value.

Despite deep $ATOM liquidity @TeamKujira acknowledged $ATOM collateral alone is not sufficient to "guarantee" $USK stability but will play a large role at first.

TVL is initially capped at 60% meaning $USK will be 67% over-collateralized — further reducing stability risk.

So how will $USK be minted / burned?

🛠️ To mint $USK one needs to stake $ATOM (initially)
❤️‍🔥 Burn $USK to redeem collateral
📉 If user collateral value is too low, liquidation occurs via ORCA

Initial parameters and fee structure for $USK:

✅ 0.5% mint fee
✅ 0.5% ORCA withdrawal fee
✅ 1% liquidation fee
✅ 5% APR on borrowing
✅ Network fees

Eventually, the $KUJI community will be able to propose changes to these parameters as they see fit.

How does this affect $KUJI?

👉 $USK generates fees for $KUJI 👈

- Users lock $ATOM + mint $USK (0.5% mint fee)
- Users hold $USK or make swaps (5% APR accrues)
- Users repay $USK (interest spread) OR are liquidated (1% liq. fee)
- Liq. collateral is withdrawn (0.5% fee + Int.)

In sum.

By using $ATOM instead of $KUJI (initially) to mint $USK, Kujira avoids running the same risk of a death spiral that #TERRALUNA ran into with $UST and $LUNA.

As Kujira grows, more fees are generated to protect the $USK peg to $USD, allowing Kujira to add more assets.

None of this is NFA, and you should ofc apply caution to any new ecosystem introducing a new stablecoin.

But one thing is for sure.

Kujira is looking more and more to be a safer yet new ecosystem that can fill the void left by Terra.

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