Terra (LUNA) is a blockchain protocol that was built to develop stable cryptocurrencies also known as stablecoins. LUNA is the native currency of the Terra blockchain that stabilizes the crate of stablecoins it offers to make borderless payments.
The major barrier that is hindering the wide-scale adoption of cryptocurrencies is price volatility. And the stablecoins issued by Terra have broken these barriers and made their way to various sectors in the crypto economy.
To stabilize the price Terra uses a price stabilization algorithm that frequently adjusts the money supply of an asset according to the demand.
Terra Proof-of-Stake is its consensus mechanism where miners are required to stake their LUNA to mine transactions. Currently, users can access also invest in synthetic assets which gives them a wider range of investment options.
There are numerous factors that have led to the wide adoption of Terra in the cryptocurrency market. So, let us take a deep dive into the Terra blockchain ecosystem.
There is a small tax that is charged by the protocol on each transaction which ranges from 0.1% to 1% but is capped at 1 TerraSDR. These taxes can be paid in the form of any Terra currency which is then distributed among the validators at the end of each block.
Gas fees are charged on each transaction so that there is no spamming of the network. The minimum gas price is set by the validators, and it is disbursed to them at the end of each block.
The Terra blockchain relies on validators to secure the network because it runs on Tendermint consensus. They are responsible for running full nodes to commit new blocks to the blockchain for which they are compensated in the form of rewards.
The protocol relies upon the top 100 validators with the most weight. Validators can also participate in the governance of the treasury but that depends on the total amount staked and delegations.
If a validator misbehaves by executing a double sign transaction or is offline for a prolonged period, they risk their staked LUNA being slashed by the protocol as a penalty for the misbehavior.
Delegators are the LUNA coin holders who can use the Terra Station website to delegate their LUNA tokens to a validator and in return, they receive a proportional amount of staking revenue.
Delegators share the responsibility with the validators since they receive a portion of the revenues from staking. So, suppose if a validator misbehaves and is slashed then a portion of the delegator’s stake is slashed in proportion to that of the validator.
This creates accountability thereby pushing the delegators to choose validators wisely and responsibly.
With time Terra ecosystem has been a host to many ingenious projects that played a vital role in the development of the blockchain economy.
Mirror is a DeFi protocol that allows mint tokens that mirror stocks and other assets. These kinds of tokens or assets are generally known as synthetic assets but in the Mirror ecosystem, it is called ‘mAssets’ (Mirrored Assets).
These synthetic assets give you a chance to the price action of stocks like Tesla, Coinbase, and so on with fractional ownership. To mint mAssets you a user needs to deposit Terra’s UST stablecoin as collateral.
The Mirror token (MIR) holders govern the Mirror Protocol ecosystem and Mirror Assets can be accessed also through Ethereum and Binance Smart Chain (BSC) via bridges.
Anchor protocol is a decentralized savings protocol that means it is just like a savings bank account that supports instant withdrawals and deposits. The protocol stakes deposited cryptocurrencies on various proof of stake blockchains and in exchange provides you with stable interest rates on your deposits.
It can be used by anyone around the world who has access to the internet and enables them to earn passive income on the blockchain.
The native token of Anchor Protocol – ANC can be used to create new management polls that can be voted on by staking users.
Angel protocol was launch in January 2021 with the goal of crowdsourcing LUNA tokens from Terra blockchain and help charities. It looks at the charity world with a different concept where it transforms charity contributions into perpetual charity endowments.
Through Angel Protocol, you can pledge UST for the charities, and then it uses Anchor Protocol to earn a high yield fixed interest.
So, overall Angel Protocol is not only benefiting the charities but also working towards the upliftment of the entire Terra ecosystem.
The Terra blockchain was created by Terraform Labs, a company based in South Korea that was founded in January 2018. The team of Terraform Labs is highly experienced and with Do Kwon as the CEO who is also the co-founder, the Terra ecosystem has flourished over the years since its launch.
The Columbus 5 upgrade to Terra will change the seigniorage which is nothing but the process of burning LUNA tokens to mint new Terra stablecoins. Currently, for minting UST only a portion of LUNA is burned and the remaining goes to the community pool and the oracle reward pools.
Now with the upgrade, the entire seigniorage will be burned and extra burn will bring more adoption of UST thereby increasing the price of LUNA tokens.
But that is not all, Terra has many more upgrades that will enhance the functioning of its ecosystem.
To maintain price stability and obstruct Terra’s stable assets from deviating from its peg the protocol adjusts their supply as per the fluctuations in demand. So, when there is a surge in price for stablecoins LUNA is swapped with it and a portion of LUNA is burned in the process, where the rest is reinvested for further development of the network. This process is called seigniorage that increases the value of LUNA while maintaining the price of stablecoins.
Since Terra is a community-governed protocol LUNA token holders are allowed to submit proposals to vote on software upgrades, changes to the fee structure, technical modifications, and monetary policy.
The price of LUNA and other relevant currencies against USD is reported by a group of Oracles (data feeders) which determines how much UST or other stable currencies will be minted for each unit of LUNA.
Terra is the one of largest blockchains in terms of collecting revenue and which is projected to increase in the coming years. It has introduced the market to a unique design that not only includes price stabilization but also demand stabilization mechanisms. Before Terra entered the e-commerce market, companies were paying millions of dollars as transactions fees which drastically cut down up to 80% after Terra came in and they have also incentivized their users for using the platform.
It is easy for Terra to maintain the price due to the stability in the mining demand because the volatility through the price changes in LUNA is absorbed by the miners. Terra recently announced its new 150 million funding initiative dubbed Project Dawn. The fund will strengthen the critical infrastructure while advancing inter-blockchain communication.
The law of demand by Alfred Marshall states that when the demand is more and when the supply is less the price will increase. In countries like South Korea and other East Asian countries, Terra stablecoins are being adopted in various sectors. Now platforms like Chai and PlaywithTerra have millions of users and this has surged the interest in LUNA over a period.
I think the future for stablecoins is bright and that directly affects the price of LUNA therefore it can be a smart purchase for any investor’s portfolio.
The further growth of Terra depends on how it performs in the rest of the countries in the world because growth can be easily sustained if it is diversified.
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