Terra is in fact a blockchain protocol that implements algorithmic stablecoins to power entire payment systems built on the network.
LUNA, the native cryptocurrency of the Terra network, is designed to keep all of Terra’s stablecoins… well, stable.
With a primary use-case of staking to keep the network functioning securely, LUNA is both a utility and governance token.
When it comes to choosing between the price stability of doing business in fiat currencies and the censorship resistance of cryptocurrencies, Terra means that businesses no longer have to compromise.
In an increasingly unstable, yet ever-increasingly globalised world, the unrestricted cross border payment systems that Terra opens up, is a game changer.
Terra’s integrated network of algorithmic stablecoins and the LUNA token at the heart of them all, offers instant settlements, low fees and seamless payments.
No matter where in the world or which fiat currency you wish to transact in.
When it comes to learning about the premier programmable money for the internet, our Terra (LUNA) guide has you covered.
Terra (LUNA) was founded in January 2018 by South Korea’s Daniel Shin and Do Kwon.
Kwon later became CEO of Terraform Labs, the company set up to be the main driving force behind the entire Terra project.
Terra launched its mainnet in April 2019 and the pair’s dream of driving the rapid adoption of cryptocurrency and blockchain technology by focusing on price stability and usability, became a reality.
The main sticking point when it comes to answering what is Terra (LUNA), is the confusion that arises around the LUNA token and the network’s completely separate stablecoins.
Let’s introduce the concept of each below.
LUNA, the native cryptocurrency of the Terra network, acting as both a utility and governance token.
It is in fact not a stablecoin itself, but instead works to keep all of Terra’s stablecoins priced in comparison to their various fiat pegs.
For example, keeping Terra’s US dollar pegged stablecoin called TerraUSD (UST), pegged to $1.00 USD.
As you can see on the following CoinGecko chart, the price of LUNA continues to rip higher as we make a new market wide bull run.
LUNA has a current circulating supply of 403,075,459.30 LUNA, adjusting up and down in order to keep the network’s stablecoins priced as they should be.
Alongside LUNA, there are a number of fiat-pegged, algorithmic stablecoins on the Terra network.
You see, the LUNA token itself is not actually stablecoin, but instead it exists to facilitate the stability of this separate series of coins.
A variety of the stablecoins available on the Terra network include:
Now that we’ve introduced the basics, let’s move onto how Terra (LUNA) and these stablecoins work, before delving into the rest of our complete guide to Terra (LUNA).
Terra uses Cosmos blockchain technology and is designed to challenge incumbent retail payment apps.
By circumventing the entire existing fragmented payment infrastructure, Terra is able to offer a comprehensive end-to-end payment solution.
Using Terra's technology, payment providers could save hundreds of millions of dollars annually.
So as you can see, in its basic form, Terra is a payment system.
A system that is supported by several fiat-backed stablecoins that via algorithmic stabilization, are pegged to a set fiat value.
This is achieved by utilising the LUNA token to manipulate supply.
To better understand how Terra (LUNA) works, it is better to break it into its component parts and examine each separately:
Terra's global payments system uses fiat-pegged stablecoins to ensure price stability. Terra promises the availability of fast and affordable settlements, price stability, and wider adoption of fiat currencies with Bitcoin (BTC) censorship resistance, according to its white paper.
When it comes to Terra stablecoins, yield is generated and the coins are inter-chain and decentralized. TerraUSD, TerraKRT, and TerraMNT are stablecoins built on the Terra blockchain. TerraUSD is a new currency, whereas TerraKRW has an established history in South Korea and TerraMNT in Mongolia.
Terra also provides other stablecoin products: TerraCNY, TerraJPY, TerraGBP, TerraKRW, TerraEUR, and the International Monetary Fund’s TerraSDR
Chai is Terra's e-commerce payment gateway that delivers an easy-to-use experience to customers who do not have direct experience with cryptocurrencies. The front end looks like any other trustworthy payment gateway that integrates with the top 15 Korean banks. Terra’s blockchain is used on the backend to service merchants, who enjoy faster settlement (6 seconds) and lower costs (0.5-1%) than traditional payment systems.
Anchor is Terra's application that allows for staking in Proof of Stake networks with the goal of earning a staking reward (transaction fees and block creation payments) as earnings yield. In essence, Anchor is Terra's savings hub protocol.
Mirror is Terra's protocol that offers investors access to the US Stock Markets by providing tokens that 'mirror' the underlying base US stock. Mirror operates in much the same way as its competitor, Synthetix. However, the Terra 'Mirror' protocol is much more of a capital efficient system than Synthetix as Mirror uses TerraUSD as collateral in lieu of SNX, with the former providing a higher degree of stability. In this manner, Mirror applies a 150% collateralization rate, far lower than Synthetix 750% rate.
The LUNA token is the native token of the Terra protocol. The LUNA token is essential to the Terra ecosystem as the same provides security for the network through staking, governance, and most importantly, LUNA provides the mechanism responsible for holding the Terra stablecoins at peg.
The Terra ecosystem consensus runs on Tendermint, and as such, a number of validators secure the network (by the number of LUNA tokens they own plus the amount delegated to them by stake). The Terra protocol is based on a Delegated Proof of Stake (DPoS) consensus. The Validators run full network nodes and the Validator's work product not only provides for network consensus but also provides adding new blocks to the network for which they are compensated in LUNA tokens. So, for governance purposes, the weight of the Validator's vote is dependent upon the amount of the Validator's stake plus the sum of tokens delegated to them.
Terra's stablecoins are all pegged in value to specific fiat currencies. As these stablecoins are intended to be used for e-commerce, it is essential that they retain a specific constant value. This stabilization in the Terra network is achieved by adjusting the supply of the stablecoin in question appropriately to fluctuation in demand that moved the value from peg. This is best explained (and understood) by way of example. Using TerraUSD as the example, we find:
There is a 1:1 peg between TerraUSD and the US$. TerraUSD is stabilized by the native currency of the Terra blockchain, LUNA. TerraUSD's algorithm restores its peg every time it drifts from it by either minting or burning coins.
If TerraUSD drops to 0.98, arbitrageurs will be able to sell 1 TerraUSD (worth $0.98) and receive $1 worth of LUNA. To compensate the arbitrageurs, the protocol will mint new LUNAs and burn the TerraUSD sold by arbitrageurs, which will reduce the total supply of TerraUSD. So, TerraUSD holders will absorb the drop in price as the overall supply of TerraUSD increases.
As TerraUSD's value rises to say $1.02, arbitrageurs can buy 1 TerraUSD (worth $1.02) for $1 worth of LUNA. More TerraUSD will be minted, increasing the supply. The LUNA paid by arbitrageurs will be burned on the backend. In other words, TerraUSD's value will increase as the total supply of LUNA falls, benefiting LUNA holders.
From this example we conclude that price stabilization is achieved as a function of balancing the value of currency on one hand and collateral on the other, with the balance being met through the exchange of the two. This seigniorage model used by Terra is dependent on swift reaction by arbitragers to system price deviations and market supply/demand imbalances.
Growth and expansion of the Terra (LUNA) ecosystem into a worldwide payment processor is key to its continued success. At the time of writing this subsection of our guide to Terra (LUNA) a price pump of LUNA tokens is underway over recent days.
As more businesses agree to utilize Terra's payment system, and expansion into more specific fiat based stablecoins continues, the future for Terra (LUNA) is indeed very bright.
Imagine a cashless payment system where you as the customer can pay for things using your card or mobile device (check). Imagine going to a merchant which accepts one of several such cards or mobile device services (check). Now imagine being in a region where instead of "several" there are at least 45 such cards or mobile device services accepted. Now imagine the nightmare it must be to handle 45+ ways to pay for something "without cash" in hand. Terra (LUNA) is used to turn this nightmare into a painless dream, and this dream into reality. A crypto payment solution is what Terra (LUNA) is used for.
"Terra is a blockchain protocol that develops and supports stable payments and open financial infrastructures."
As noted earlier, there are numerous payments systems used for handling "digital money"-- more than 45 just in Asia alone.
These payments systems are built on outmoded technological infrastructure, and they encourage the use of intermediaries looking for their cut of transactions fees.
Terra is made to streamline the payments process.
"The entire protocol is supported by a basket of seigniorage style stablecoins pegged to various fiat currencies."
Terra uses a series of stablecoins pegged to the values of major world currencies.
These include stablecoins for US Dollar (TerraUSD), Euro (TerraEUR), British Pound Sterling (TerraGBP), Chinese Yuan (TerraCNY), Japanese Yen (TerraJPY), South Korean Won (TerraSKW), even Special Drawing Rights (TerraSDR) from the International Monetary Fund. In this way, the Terra stablecoins offer seamless cross-bordeer exchange with virtually instant settlement times.
"All are stabilized algorithmically by the native asset of the blockchain, the LUNA token."
To keep payments as close to currency values as possible, Terra's native token LUNA is issued or burned as needed in order to maintain the pegs each stablecoin have with their respective currencies. When transaction volume is high, the Terra network creates more LUNA tokens. When transaction volume is low, the Terra network buys back LUNA tokens for the purpose of burning them. Algorithms are used to determine when to create or burn LUNA tokens.
At least 45 digital payment services are used throughout Asia.
Among these are Alipay, ApplePay, KakaoPay, and SamsungPay. Each has its own infrastructure, and each expects its cut of transaction fees when it is called on by a customer at a merchant. Add to this the ForEx (Foreign Exchange) layer when a customer from Country A uses the services in Country B.
Terra (LUNA), was made to improve the efficiency of digital payments for both merchants and customers. As with many crypto-based solutions, Terra (LUNA) aims to reduce the insane number of intermediaries involved in a process (in this case, digital payments).
Built using technology from the Cosmos blockchain, Terra (LUNA) was built as a comprehensive end-to-end digital payment solution that can bypass the entire existing-- and outdated-- fragmented digital payments infrastructure.
Terra (LUNA) makes this possible by using stablecoins for various fiat currencies (USD, EUR, GBP, CNY, JPY, KRW, SDR, and others) to keep ForEx exchanges in line with their cash equivalents.
As with most crypto-based solutions, transactions are made faster while fees are reduced. Merchants who accept credit cards have to pay credit card fees of 2.8% or more-- and if the merchants have to pay that 2.8% or more, that means their customers have to pay that-- for the privilege of waiting 7 days for the transactions to settle before they can collect. On the other hand, merchants who use Terra pay a 0.6% transaction fee and receive payments in 6 seconds.
The LUNA token is used to maintain equilibrium among the various Terra-based stablecoins. That's a pretty important function for a token.
Besides helping the Terra stablecoins maintain their pegs, LUNA is used for staking and for governance within the Terra network. Community proposals are submitted and voted upon.
Holders of staked LUNA receive 100% of the transaction fees generated by the stablecoin payments. This helps increase network effects for Terra while accelerating adoption of the network’s stablecoins.
Like Hive, Terra (LUNA) is a Delegated Proof of Stake (DPoS) cryptocurrency which can be staked. Holders of staked LUNA can vote on Validator-submitted proposals in proportion to the amount of LUNA they staked. Also, Validators (known in Hive as "Witnesses") gain voting rights regarding any and all vital updates to the Terra network.
Terra (LUNA) is used to solve the payment problems encountered by merchants everywhere: unpleasant credit card fees and lengthy settlement times prior to receiving payment.
With fees well below 1%, customers keep more of their money. With 6 second settlement times instead of the 7 days for credit card payment settling, merchants get paid faster.
With its algorithmic use of the LUNA token with its stablecoins, Terra is able to generate rewards to holders of staked LUNA.
It's been said that the hardest thing to do is to make something easy. This is definitely the case when it comes to digital payment solutions within the context of Asian E-Commerce.
If Terra can solve the problems involved with merchants needing to handle 45 or more payment systems, imagine what Terra can do elsewhere in the world.
In this section of our Terra (LUNA) guide, we are going to compare two blockchains - Terra (LUNA) and Synthetix (SNX).
This guide is meant to show you an unbiased feature set comparison of blockchains in the discussion.
The below table shows you the comparison points between the two blockchains.
| Terra (LUNA) | Synthetix (SNX) | |
|---|---|---|
| LUNA governance network launched in 2018 and their first coin launched in 2019. Daniel Shin and Do Kwon are the founders behind the Terra (LUNA). | In 2018, Havven network was launched which later rebranded into the Synthetix. Kain Warwick was the person behind the Havven and Synthetix. | |
| LUNA is a governance and staking token on Terra network. It allows multiple stablecoin currencies to be pegged on regional currencies. e.g. TerraUSD for US dollar and maybe TerraGBP for UK. | Synthetix is a token on the top of ETH ERC-20 protocol that allows users to bet on the assets. The assets can be crypto, stocks, future options, gold or any other commodity market. | |
| Terra has marketcap of around $6 billion based on Coinmarketcap data. | Synthetix has $1.51B of marketcap with circulating supply is around 114.84M. | |
| Terra allows users to extend it's capabilities using the smart contract. The contracts can be used for staking, governance and for stablecoin use case scenario. | Synthetix being a token out of ERC-20 you can make use of it for smart contracts, staking and also for other crypto assets. | |
| Terra makes use of the Rust as it's primary language for deploying the smart contract and any extension being developed on the top of it's blockchain.It also makes use of the Go and Assemblyscript. | Synthetix makes use of the Solidity as it's language for development of the smart contract. This is because of the fact that it being an ERC-20. | |
| Terra can be scaled upto the 10,000 transactions per second while the block time stays at 6 seconds. | Synthetix being a layer 2 solution on the ERC-20 it can be scaled upto 100000 transactions per ssecond. It can make use of the rollups options to achieve that. | |
| Terra use case exists in the governance, regulation, scaled stablecoin that can be used by every country. | Synthetix use case exists in a market that has the ability to digitize the commodities on which market can have investors betting and sell them. | |
| Terra has a means to run on multiple blockchains using the Cosmos bridge at present. In near future, they can be making use of other bridges. | Synthetix being an ERC-20 layer 2 solution, it can be bridged with blockchains that can connect to Eth Ecosystem. Currently Avalance blockchain, secret networks and even Chainlink or Polkadot bridgets. | |
| Terra (LUNA) can be staked at 7.12% APY and validator node can get reward at a percentage for 7.91%. | Synthetix can be staked at 0.23% APY while the token can be lent at a percent of 6.64%. | |
| Terra (LUNA) makes use of the Proof of Stake consensus mechanism. | Synthetix has it's own proof of stake consensus which sets it apart in a layer 2 ERC-20 protocol. |
Terra (LUNA) intends to solve the problem of stablecoins, governance and stability across multiple native currencies.
Meanwhile, Synthetix is intended to be used primarily in the commodity markets.
In the past, Synthetix used to be one of the stablecoin projects on Havven.
However, its evolution into the protocol for the commodity market has completely changed its future directions.
Both blockchains address different use cases yet they can play a huge role in the governance, regulation of cryptocurrencies and commodities on the government monitored platform after the regulation bills pass across multiple nations around the world.
Terra is a protocol that allows the creation of algorithmic stablecoins.
The native cryptocurrency of the Terra network is called LUNA, acting as a utility and governance token to facilitate the entire network.
It supports Terra's suite of stablecoins, as well as all decentralised apps (dApps) such as the various payment processing systems.
This section of our Terra (LUNA) guide answers questions around whether Terra (LUNA) is a stablecoin itself and explores how it works.
Before we talk about LUNA and the various stablecoins found on the Terra network, let’s first discuss the different types of stablecoins.
While the concept of stablecoins being cryptocurrencies that are pegged to the market value of an external market like the USD is fairly straightforward, did you know that not all stablecoins are created the same way?
There are actually two different types of stablecoins:
Do you see how we used the words ’we hope’ when talking about off-chain collateralised stablecoins?
When it comes to the world of finance, a good rule of thumb to live by is to never have to hope or trust the word of a third party.
Human beings are inherently pieces of shit who will screw you over if they get a chance.
The fact that algorithmic stablecoins such as those found on the Terra network require the execution of a piece of code instead of hope or trust will always be the more favourable option.
Before we jump into how the LUNA token is used to maintain a stablecoin’s peg, let’s first take a look at the various stablecoins found on the Terra network.
At the moment, stablecoins on the Terra network include:
As you can see, the Terra network allows for so much more than just a simple USD peg such as what you see with Tether.
Essentially this model of algorithmic stablecoins allows a peg to be maintained with any global currency, commodity or even things like stock prices.
All technically outside of the reach of a country’s regulator because no physical assets have to be bought or held for the peg to be maintained.
But heading back to the LUNA token, no it’s not a stablecoin itself.
The LUNA token is actually the Terra network’s way of keeping the above listed algorithmically pegged stablecoins priced as they should.
This is achieved by incentivising trading between LUNA and stablecoins whenever supply/demand causes the price of the stablecoin to fluctuate away from the peg’s true fiat value.
Let’s run a quick example of how the LUNA token is used to maintain the peg of TerraUSD (UST) to $1.00 USD.
If the price of UST rises above the $1 level, then the algorithm would burn LUNA to mint more UST and therefore reduce the price.
If on the other hand, the price of UST goes below the $1 level, then the algorithm would instead swap UST back to LUNA and increase the price back to the peg.
To facilitate this process, LUNA investors can stake their tokens into a pool and are rewarded for absorbing the volatility within the various stablecoins.
The LUNA token actually has an elastic circulating supply that fluctuates according to the needs of the collateralisation mechanism described above.
With a max total supply of just under a whopping one billion LUNA coins, Terra is therefore able to manage its stablecoin monetary policy appropriately.
LUNA isn’t a stablecoin, but is the key to keeping Terra’s various stablecoins such as UST, pegged.
Terra USD (UST) is an algorithmic stablecoin built on the Terra Blockchain and pegged to United States Dollar (USD).
It's fully decentralized and infinitely scalable as compared to its Ethereum's counterparts such as DAI & USDT (Tether) which are lagging behind in terms of user experience.
This section of our Terra (LUNA) guide compares the two popular stablecoins and makes a call on which is ultimately better.
terra usd ust vs usdt
In this subsection of our guide, we are doing a head to head comparison between two stablecoins Terra USD (UST) and Tether (USDT).
Both of them are pegged to USD but there are some major differences between the two.
In the end, we will try to analyze which one is better and why.
Let's start!
As crypto space expands due to more adoption, the need for stablecoins will increase to provide for e-commerce activities. Nobody likes to buy stuff with volatile assets. Tether is the most popular among all of them for now but Terra USD (UST) is a great decentralized, cross-chain, fast and cheap option. Terra KRW (KRT) pegged to Korean won is already quite famous among South Korean users. Chai & MemePay payment apps have 2 million active users and are grossing $1 billion in transaction volume per annum.
It's only a matter of time for Terra USD to get adopted by Western & European markets. Terraform Labs (TFL), the organization which created & maintains the Terra blockchain, recently announced 70 million UST from the TFL stability reserve fund to boost yield reserve for Anchor protocol that provides 20% APY on UST. Terra's ecosystem is exploding because of the several partnerships done with other blockchain projects and multiple exchange listings that happened in the past month.
The future of Terra's group of stablecoins such as Terra USD, looks bright and they are poised to take the limelight from Tether.
Terra (LUNA) is an algorithmic Stablecoin protocol that provides a decentralized financial infrastructure for everyone to build on. It was started in 2018 by Terraform Labs, based in Seoul, South Korea designed to compete with traditional finance systems. Terra can be used to build cryptocurrencies with stable prices powered by their native token LUNA. The reason Terra's team has decided to focus on stablecoins is that they are most likely to be considered for real-life transactions. Terra already has a rich ecosystem of DApps like Mirror Protocol to create Digital Assets on Terra Blockchain, Anchor Protocol for DeFi services, payments apps like Chai & Memepay which are quite famous among its userbase in South Korea and Mongolia respectively.
terra luna pros and cons
In this section of our guide to Terra (LUNA), we are going to look at some of the project’s major PROs and CONs.
In the end, I will try to explain whether you should buy LUNA in 2021 or not.
Let's get started!
In this subsection of our Terra (Luna) coin guide, let's investigate what factors exist relative to this asset that will affect your decision on whether or not to invest.
We will look at factors both in favour of making an investment as well as against investment, the statistics behind the coin, a brief price history of the coin, and finally a few reasonable price predictions.
The purpose of this subsection is to provide you with a starting point for the diligent research necessary prior to making a final investment decision.
Generally, cryptocurrency analysts believe Terra is a good long-term investment, and the LUNA coin has promising price predictions.
LUNA is considered a profitable investment with a huge potential to keep growing.
Its price is poised to go up to $53 in one year and $198 in five years.
Terra wants to revolutionize the e-commerce payment system and enable a full fledged financial system by becoming the biggest stable of stablecoins.
Its decentralized, permissionless and interoperable features make it an ideal blockchain platform to support digital economy.
LUNA that exploded in prices recently. It managed to make in the past 2 months more than 2,000%.
Due to its gaining popularity several listings and partnerships happened recently.
Terra's ecosystem is expanding rapidly providing several E-Commerce, DeFi and NFT related applications.
In order to mint new UST, an equivalent amount of LUNA coin is burned and vice versa.
In future once Terra expands to larger userbase, demand for LUNA will increase and a lot of burning will happen.
This can provide an upward push to LUNA's price.
While Terra (Luna) is in the stablecoin business and that implies price stability, volatility may be exacerbated in the native asset here due to regulatory intervention in the stablecoin arena.
This is a key risk in this area now and must be one of the important factors to be considered in whether or not to invest.
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