d meaning distance left til the end of the rope. Assuming that when the rope is stretched out 1 m the caterpiller remains at it's relative position, so if the caterpillar has scaled 20% of the rope, it has scaled 20% of the expanded rope as well.
d(0) = 1
d

= d(n-1) - 0.01 + (n - d(n-1) - 0.01) * 1 ⇔ d

= d(n-1) - 0.01 + n - d(n-1) - 0.01 ⇔ d

= 2*d(n-1) + n - 0.02
If 2*d(n-1) + n > 0.02, d

> d(n-1). Since d(1) > d(0), this means the function is increasing. No, the caterpillar will never scale the rope.