Terra Luna

Project Name: Terra Luna

Project Current Stage: Founded in 2018

Project Official Links: Website / Telegram / Twitter

Short Summary: The Terra Luna ecosystem’s principal utility coin is Luna. The initiative, which was founded by Daniel Shin and Do Kwon, aims to increase the usage of stablecoins.

USTerra is Terra Luna’s most well-known stablecoin, which is tied to the US dollar. According to the white paper, the project also wants to issue other stablecoins such as EUR, CNY, JPY, GBP, KRW, and the IMF SDR. Terra’s UST, unlike other stablecoin ideas, has no backing. It works on the basis of an algorithm that consumes Luna until UST supply and demand are equal. When demand for UST falls and Luna’s supply rises, the situation is reversed. Luna’s supply has dropped as more individuals exchange it, making it a deflationary cryptocurrency. The price of Luna has risen as it is Terra Luna’s primary payment and governance currency. As Terra Luna is already a blockchain network, stablecoin adoption is only one aspect of the ecosystem. By the end of 2022, Terra will have launched 160 projects.

The Ecosystem of Terra Luna

Terra’s stablecoins price stability is maintained by a simple yet innovative technique. Users can mint Luna and Terra stablecoins by burning Luna. This two-token system has dual pools that counterbalance each other. It is solely based on supply and demand in the market. The algorithm offers users incentives in the form of arbitrage possibilities, ensuring that there are always interested players eager to trade Terra for Luna or vice versa.

Terra, on the other hand, is much more than a smart method of establishing a stablecoin. The Terra ecosystem is home to a number of protocols that allow users to swiftly swap crypto and receive a high return on their investments.

The Terra protocol is a distributed ledger that is kept up to date by network validators. Validators use the DPoS algorithm to vote on blocks and are rewarded with LUNA tokens. By participating in the PoS consensus method, Terra miners contribute to security. They also aid in price stabilization by absorbing short-term demand fluctuations.

As a result, the network maintains stability through mining rewards as the money supply contracts and expands. Terra applies pressure to bring pricing back into line every time they diverge a bit. Terra’s supply is continually replenished or depleted by LUNA and Terra pools. Miners use LUNA to produce Terra, and vice versa. In both contractions and expansions, the technique provides consistent incentives. As a result, following the simple supply and demand law.

The Main Applications of Terra

Terra was meant to be a worldwide, user-friendly electronic payment platform. It originally gained appeal among South Korean e-commerce platforms because it charged lower transaction costs than most credit card and payment processor providers.

Transactions are subject to a computational cost, which is typically less than 1% of the transferred value and is paid to the validators as a reward. Terra stablecoins may be used to pay for anything, and shops can accept them as a payment mechanism to reduce their expenses. People may now utilize Terra for a variety of purposes other than payments, like lending, borrowing, investing, etc.

Here are some of the most popular applications developed on the Terra blockchain.

Mirror

The Mirror Protocol is a decentralized finance (DeFi) platform that lets users produce and trade “mirrored assets,” or Assets, that “reflect” stock prices, including major equities listed on U.S. exchanges. They function similarly to derivatives in that they allow you to follow the value of an asset without having to purchase the underlying item.

Anchor

Anchor is a terra-based, decentralized money market. It rose to prominence as a result of its industry-leading 20% annual percentage return, which UST holders can earn by depositing their tokens on the platform. It functions in the same way as a traditional bank account. To make a return, users can take out loans and save money. Stakers get the yields gained from the borrower’s interest payments as well as the staking rewards of the collateral they deposit to borrow.

Chai

By using the Terra blockchain, Chai cuts away the middlemen and gives businesses lower transaction rates than traditional payment processors and credit card providers. It also has a debit card (Chai Card) that allows customers to earn points that can be used for larger rewards at selected shops. The payment app, which has millions of users in South Korea, was introduced in June of this year.

Risks associated with the Terra Luna Ecosystem and investing in Luna

The workings of the TerraUSD (UST) stablecoin are a major concern for LUNA opponents. By market capitalization, UST is presently the third-largest stablecoin. Stablecoins are digital currencies whose value is linked to conventional assets like the US dollar. Terra’s decentralized financial ecosystem is built on the development of numerous stablecoins, and it employs its LUNA token to keep those tokens’ values stable.

The price of LUNA has lately risen due to high demand for UST. This is partly due to Anchor Protocol’s over 20% APY on UST deposits. Many say that this artificially inflates demand and that the pace is unsustainable. Terra is basically subsidizing the high yield in the hope that the environment will someday be able to support itself.

When the rate drops, one risk is that anchor clients may shift their money elsewhere. This may result in a lack of liquidity, making it more difficult for customers to sell their USTs. In addition, a sharp reduction in UST demand or significant LUNA price volatility might cause it to lose its peg, which is a danger for many stablecoins. Things can easily spin out of hand if one UST loses its value.

Terra has now put in place a few measures that should, in principle, allow UST to retain its price even in the face of extreme volatility. A $10 billion reserve fund, according to the Luna Foundation Guard, will act as a type of release valve even amid extreme market selloffs.

Investing in Terra Luna

LUNA is already fundamentally positive, and further highs are possible if the price closes above the support level. According to several crypto specialists, Terra (LUNA) has a lot of potential and ambition as a means of trade and payment. Another reason is that Terra (LUNA) has climbed into the top ten most valuable cryptocurrencies in terms of market capitalization.

Following an increasing trend in 2022, many traders and analysts predict that LUNA’s value will progressively fall in 2023. According to the same source, LUNA costs could reach $170 USD by the middle of 2022. While some analysts anticipate that LUNA will surpass the average price of 130 USD in 2022, the token trading price by the end of this year might be as low as 131.15 USD. Of course, purchasing and investing in Terra (LUNA) in 2022 is not too late. Experts believe that the prices of Terra (LUNA), Solana (SOL), and other cryptocurrencies will continue to rise, resulting in lucrative returns.

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