What Is Terra (LUNA)?

Terra (LUNA)

Updated: March 29, 2022

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    Terra is a programmable blockchain that enables the creation of algorithmic stablecoins which are pegged to fiat currencies like the U.S. dollar. Terra provides a trustless, almost frictionless cross-border payment capability that’s faster and cheaper than many existing payment apps, with the aim of becoming a universal payment option.

    LUNA is the native cryptocurrency on the Terra platform. Users can earn rewards and participate in the governance process through staking LUNA. To invest in Terra (LUNA), here are a few things to know about LUNA coin and how it works on the Terra platform.

    How Does Terra (LUNA) Work?

    Terra has become a fairly big player in the world of cryptocurrency. The Terra protocol creates stablecoins that are tied to the price of fiat currencies — but these stablecoins aren’t fiat- or crypto-collateralized like many other stablecoins.

    The Terra network uses LUNA, its native utility and governance token, to support the collateralization and price stability of the platform’s numerous stablecoins through an algorithmic process.

    Terra supports many stablecoins, including TerraUSD (UST), TerraEUR, TerraGBP and more. These stablecoins can be swapped with each other instantaneously. But more important, they offer seamless value exchange across borders, including near instant settlement and very low fees. There is a dynamic supply of LUNA coin, which increases and decreases according to the need for collateral to secure the price of the network’s stablecoins.

    When transaction volume across Terra’s network of payment service providers increases, the overall demand for TerraUSD and other stablecoins expands, Terra then algorithmically issues new LUNA coins to maintain price stability. And when the network’s payment transaction volume decreases, Terra automatically buys back more LUNA and burns the excess supply.

    Terra is powered by the Tendermint consensus protocol, which relies on validators who operate full nodes to secure the network. Validators commit new blocks to the blockchain and are compensated with various rewards. Validators, who secure the Terra blockchain, also use LUNA for staking via Tendermint’s delegated proof-of-stake (DPoS) consensus mechanism.

    Advantages and Disadvantages of Terra (LUNA)

    While there’s a lot to like about the Terra project, and many ways that it stands out in the universe of other cryptocurrencies, there are some potential downsides to consider as well.

    Advantages

    First, Terra has a clear game plan in terms of how it wants to use its DeFi capabilities to disrupt traditional payment channels. By creating a network of multiple, swappable stablecoins, they’ve enabled swift, efficient, and cheap cross-border payment options.

    Another upside is that Terra uses a fairly unique algorithmic system for keeping the value of their stablecoins stable. Because LUNA can be minted and burned dynamically to keep the system in balance, it creates a self-sustaining network.

    Because Terra used Cosmos SDK to bootstrap its blockchain – rather than engineering their own blockchain from scratch – it’s easier for developers to create dApps, with plenty of technical support.

    Terra is interoperable with other blockchains, so their stablecoins can be used on other blockchain ecosystems as well.

    Disadvantages

    Regulators are undecided about the nature of stablecoins and whether they can be considered securities. The uncertainty over regulation is a common thread throughout the crypto market, but Terra’s use of synthetic assets through its Mirror Protocol could make it more vulnerable.

    Investors should bear in mind that because Terra’s stablecoins are algorithmic — and not overcollateralized or backed by fiat — they might be vulnerable to market or even technological risks that could destabilize them. This isn’t mere speculation as there is a history of some stablecoins having broken from their pegs and crashed.

    Last, there is always a long-term concern with many crypto projects about adoption, and Terra is no exception. Will Terra’s technology unseat the top payment incumbents in the ecommerce markets? It’s something for investors to keep their eyes on.

    Advantages

    Disadvantages

    • Enables fast, cheap, cross-border payments that are competitive with established payment systems.

    • Terra could attract regulatory scrutiny and oversight.

    • Unique algorithmic backing of stablecoins is self-sustaining and truly decentralized.

    • The algorithmic structure may also create vulnerabilities.

    • The Cosmos SDK technology makes Terra more accessible for dApps.

    • Questions about Terra’s long-term adoption.

    • Interoperability: Terra’s stablecoins can be used on other blockchains.

    Who Created Terra (LUNA)?

    Terra was created in January 2018 by Terraform Labs, based in Seoul, South Korea. It was designed to compete with traditional payment systems. CEO Do Kwon and Daniel Shin created Terra (LUNA) to build cryptocurrencies with stable prices powered by their native token LUNA.

    Terra’s team decided to focus on stablecoins because they are more useful for real-life transactions.

    Terra also has a robust ecosystem of dApps, like Mirror Protocol (MIR) to create digital assets on the Terra blockchain, as well as Anchor Protocol (ANC) for DeFi services, particularly lending and borrowing, and well-known payments apps like Chai & Memepay.

    Why Does Terra (LUNA) Have Value?

    Terra is unique in that its platform uses stable coins that are pegged to fiat currencies, mixing the benefits of cryptocurrencies which can be traded all over the world and fiat currencies which offer price stability.

    Most stable coins are pegged to an underlying asset like the U.S. dollar. The Terra protocol issues many stablecoins pegged to a country’s currency. For example, UST is pegged to the U.S. dollar. Anyone can make new stable currencies pegged to an asset. Stablecoins are easy to transact with, carry low fees and can be denominated in any currency.

    Terra stablecoins are able to maintain their stability thanks to Terra’s native cryptocurrency, LUNA. For every stable coin transaction, a small fee is paid to LUNA stakeholders. The more Terra stablecoins are used on the platform, LUNA stakeholders are rewarded in more fees, which inevitably increases LUNA’s value.

    Price of Terra (LUNA)

    Terra (LUNA) is currently the 8th largest crypto, and it’s worth $94.56 as of March 23, 2022. Terra has a market capitalization of $34.25 billion and is among the most traded cryptocurrencies on the market by volume.

    2021 LUNA Price History

    Why Use Terra (LUNA)?

    The Terra blockchain is different from its crypto competitors because it can host many algorithmic stablecoins on its network. Terra has its own proprietary algorithm that adjusts the supply of LUNA according to the demand for the cryptocurrency. Users may be interested in buying Terra (LUNA) because it offers price stability, it is easy to exchange with other stablecoins and its future use cases could help increase its value over time.

    Furthermore, there are more than 100 projects on the Terra platform across the DeFi, NFT, and Web3 spaces. As the Terra network continues to expand with more applications being built on the network, the value of LUNA will increase.

    How Can I Buy Terra (LUNA)?

    You may have to do a little research to find platforms that enable LUNA trades. Not all exchanges carry all forms of crypto, and some states may restrict certain crypto trades. Also, be sure to review how crypto exchanges work, as well as any fees that may apply.

    Step 1: Choose a crypto exchange.

    Set up a crypto trading account that supports LUNA, and then fund your account with a secure wire transfer from your bank, or even with a credit or debit card transfer (but check with your bank in the case of restrictions). Fees may apply.

    Step 2: Set up a wallet to store your assets.

    Just as you might keep money in a physical wallet, cryptocurrencies are held in digital “wallets.” Be sure to select a crypto wallet that supports LUNA.

    Note that some crypto exchange accounts come with a custodial wallet, and there may be restrictions about moving your crypto off-platform.

    Step 3: Trade LUNA crypto.

    Once you’ve executed the trade, you can transfer your holdings to your wallet. You may want to leave your crypto there if you plan to keep trading.

    Sharing Personal Data

    Depending on where you trade crypto, different platforms may require different forms of identification. Some exchanges adhere to Know Your Customer (KYC) rules, a common set of standards that require investors to disclose certain information. Others may allow anonymous or P2P transactions.

    Associated Costs

    As with any type of investment, there are fees to consider when trading LUNA or any type of crypto. Be sure to understand the costs that may come with trading crypto on one platform or another, or using one form of payment versus another.

    How to Sell LUNA

    Once you’re ready to sell your LUNA, the next step is deciding whether you plan to cash out for a fiat currency like U.S. dollars (USD) or trade another type of crypto.

    Step 1. Decide what to sell.

    If you’re exchanging LUNA for USD, the steps may be different than if you’re buying another form of crypto — or you may have to complete a more extensive KYC identification.

    Step 2. Find the best price.

    Crypto prices fluctuate by the minute, so do your research beforehand so you know a good offer when you see one.

    Step 3. Sell LUNA.

    Complete the trade and move your crypto (or cash) to your wallet, unless you plan to keep trading on the exchange.

    Step 4. Keep taxes in mind.

    Remember that crypto gains are subject to taxes. Be sure to consider the tax implications of selling LUNA crypto, and consult a professional as needed.

    Does Terra (LUNA) Have Staking?

    Yes. Terra does have staking and LUNA stakeholders validate transactions in exchange for rewards and control the blockchain’s governance by voting in changes in policy and software changes.

    The Terra network allows 130 validators to participate in the consensus, and their rank is determined by the amount of LUNA that staked. The Terra network also has delegators who are users that receive rewards without running a full node but from staking their LUNA to a validator. Terra users vote through their staked LUNA — one LUNA equals one vote. This is a part of the governance process that influences the network’s monetary policy.

    The Takeaway

    Terra (LUNA) is a fast-growing DeFi ecosystem that has created an innovative system for creating stablecoins that can then be used as part of a seamless network of cross-border payments. The purpose of Terra (LUNA) is to create a universal payment system that aims to increase the usability of cryptocurrency globally. The platform aims to provide a scalable payment solution through algorithmically backed stablecoins that are pegged to fiat currencies.

    LUNA is the native crypto that is used to stabilize the currencies. It’s also a governance token, and validators on the network can stake LUNA to earn rewards. While Terra is considered a strong contender in the global digital payments space, the platform does have some potential vulnerabilities, including its reliance on algorithms to maintain the price stability of its stablecoins. Terra could also attract the attention of lawmakers, as the push to regulate the crypto markets continues to gain momentum.

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