Terra (LUNA) got significant traction in the past year, and its underlying blockchain represents the next generation of innovative development in the sphere. Accordingly, it is fitting to dive deeply into Terra to know what this project is about.
Crypto gambling enthusiasts on BC.Game relish projects and coins with tremendous upside. Wagering on such tokens can be potentially rewarding if it continues to rise in valuation as they HODL.
The Terra blockchain is especially relevant in the era of Decentralized Finance (DeFi). This revolutionary industry is about a concerted effort to get the bits and pieces to work together. Terra has found its niche and majored in stablecoins which are now an indispensable aspect of the DeFi sector. Crypto gambling fans and traders may know a bit about LUNA because of its strong performance in the past twelve months.
About The Terra Blockchain
How it all began
Terra was developed and launched by Terraform Labs in 2018 amid a rocky bear market in the cryptocurrency sector. It has roots in South Korea, explaining the significant following in that region. Notably, the two co-founders, Daniel Shin and Do Kwon have a rich background in e-commerce. They led Terra Alliance, a group of e-commerce companies operating in Asia.
The co-founders sought to improve the stability and adoption of cryptocurrencies. They identified that Bitcoin and other leading cryptocurrencies were too volatile to fill this role.
Stability is fundamental to crypto adoption
If your national currency fluctuated by ten or thirty per cent daily, would it make much sense as a medium of exchange? Perhaps not. For cryptocurrency to gain meaningful usage in regular commerce, it has to emulate the relative stability of fiat.
Accordingly, the idea of stablecoins came to life. These are cryptocurrencies with values pegged to national currencies like the US Dollar, the Euro, or the South Korean Won. Terra aims to add efficiency to DeFi payments by providing a hub for stablecoins.
Notably, most famous stablecoins utilise the collateral in fiat currency or asset backup to sustain value. Instead, the Terra blockchain has introduced algorithm-backed stablecoins that track the various fiat currency prices. The development team has to adjust the token supply to maintain the set ratios constantly.
Terra aims to improve the working model of popular stablecoins such as USDT and USDT. The latter has come under regulatory scrutiny in the US owing to its claim of having US Dollar backup in a bank account.
LUNA’s market capitalisation shows that this project is popular. Despite the relatively late launch, it is one of the ten largest cryptocurrencies and one of the most valuable DeFi projects.
How Terra supports stablecoin
The development team implements a unique supply model to promote stability in stablecoin prices. LUNA tokens are front and centre in this endeavour. This protocol incentivises trading between the token and each stablecoin when there is a need to increase or reduce the stablecoin supply.
An elastic token supply for stablecoins stability
Terra’s whitepaper points out the volatility of cryptocurrencies like Bitcoin as a hindrance to adopting an efficient medium of exchange. Therefore, Terra seeks to implement an elastic system that promotes stability.
The result is a collection of stablecoins traded as per their real-world exchange rates. For instance, one can sell TerraKRW (Korean Won) for Terra USD at the effective KRW/USD exchange rate.
LUNA tokens fluctuate in supply and act as shock absorbers for the stablecoins above to ride on smoothly. Terra supply shrinks or increases to maintain stablecoin prices, which is the goal of this system. Accordingly, this protocol creates several stablecoins that work in a decentralised fashion for the utility of traders and other DeFi users.
Therefore, the token acts as a stablecoin peg for the stablecoins. There are various stablecoins on this blockchain. An example of such is the TerraUSD. Accordingly, LUNA powers the Terra platform and helps guide the minting of more Terra Stablecoins.
This process is automated using blockchain smart contracts. Therefore, the supply of Terra stablecoins and Luna tokens follows demand and supply laws. When stablecoin prices rise above the tied currency value, users are incentivised to burn more LUNA to create more Terra Stablecoin. For a stablecoin like Terra USD to work, it must maintain fairly consistent US Dollar ratios. The reverse happens when prices fall.
Focus on growth and increased utility
Partnerships and online profile
The project has an illustrious list of past and present partners. Fundamentally, all these partnerships have strategic value, even from a pure research standpoint. Some notable include Allina Health, The McKnight Foundation, AmeriCorps, Omaha Public Schools, and the Washington Nationals. The project also has a robust social media presence with over 300k Twitter followers.
As the size of DeFi overall grows, the utility of DeFi stablecoins improves. Their overall utilisation is fantastic for LUNA, which keeps them stable. It may be a bit early to talk of Terra challenging Ethereum for supremacy in the smart contracts space.
Besides, Terra focuses on a specific aspect of decentralised finance and will need an even steeper rise in user adoption to challenge the leading enterprise blockchain meaningfully. Nonetheless, the comparisons will start even if Terra makes up a fraction of the existing gap.
Growth from the current position
Overall, the Terra Protocol intends to be a primary bank for cryptocurrencies. Providing stability through algorithms and smart contracts makes DeFi more decentralised. It does not depend on a physical vault which a government can seize and frustrate an entire stablecoin. LUNA is in a position to streamline this sector. Users can also hold and stake the token for rewards in the protocol.
The Big Picture
LUNA has a unique role in the trajectory of DeFi. Like DEXes provide useful utility, this protocol can eliminate manual control of stablecoin ratios to fiat currencies.
Terra is working on improving the dynamics of the crypto market and its dependent ancillaries, including Bitcoin casinos like BC.Game. The flexible economics that ensures stablecoin stability are innovative and valuable. Terra’s development team has its work cut out to take this project to the next level.
Terra’s performance in 2021 indicates what many see in this project. It will be fascinating to track the development of this protocol.