Terra (Luna) is a blockchain protocol using smart contracts, oracle systems, and stablecoins to facilitate many blockchain-based applications.
Terra’s decentralized infrastructure brought different theories and concepts to the DeFi and cryptocurrency ecosystem. The protocol offers many stablecoin options for users by using a unique price-stability algorithm.
The algorithm retains the value of assets on the blockchain by altering monetary supply to ensure that users pay lower transaction fees. Also, the price-stability algorithm ensures more seamless and stable cross-border exchanges.
Brief History of Terra Blockchain
Initially, the project was launched in 2018, founded by Do Kwon and Daniel Shin. According to them, Terra moved to create smart money with unique operational characteristics to show that the digital economy can be flexible.
The blockchain aims to reduce the diverse issues and challenges permeating even the top stablecoins in the market. It aims at overcoming centralization and eliminating the technical grudges on stablecoins with its Decentralized Financial infrastructure.
Comparatively, Terra is different from its competitors. It functions on many blockchains, which the competitors haven’t been able to do. The project has a stablecoin known as “Terra USD (UST)”. Also, Terra doesn’t use collateral to stabilize asset prices but relies on its algorithm.
Moreover, Terra has a more competitive edge over other crypto coins in the market. The company aims at bringing crypto to already existing products or services which consumers know and use.
Nevertheless, they’re not focusing on converting non-crypto users to start adopting cryptocurrency, and that’s where they’re doing better than competitors.
Main Features of Terra and How it Works
Terra offers self-stabilizing stablecoins to the market through its programmable infrastructure. It maintains the value of stablecoins on the network by adjusting their supply. This process makes it possible for the coins to remain pegged to the underlying assets.
Other features of Terra (Luna) includes:
LUNA is Terra’s native coin. It is used on the network as a collateralizing mechanism to ensure that the prices of stablecoins on Terra remain stable. LUNA also facilitates the locking of value in staking activities on the ecosystem.
Without the LUNA coin, there won’t be any staking on Terra. Moreover, miners on Terra receive their rewards in LUNA. You can buy LUNA by clicking on the button below.
- Anchor protocol
This is a protocol that enables holders of Terra stablecoins to get rewards on the network. These rewards come in the form of savings accounts interests because holders can make deposits and withdraw their coins when they need them.
Also, holders can get short-term loans through the Anchor protocol by using their “liquid-staked PoS assets” from other blockchains. These assets will serve as their collateral for the loans on the protocol.
Terra offers multiple stablecoin options, such as its TerraUSD (UST), pegged directly to the United States Dollar. It also offers TerraSDR (SDT), directly pegged to IMF’s SDR, TerraKRW (KRT) linked to the South Korea currency (Won), and TerraMNT pegged directly to Mongolian tugrik.
- Mirror Protocol
Mirror protocol allows Terra users to create different fungible assets (NFT) or “synthetics” These fungible assets track real-world asset prices and introduce the same to the Terra blockchain as a basis for smart contract blocks.
However, for a user to mint the mAsset, he/she must provide collateral. The collateral will lock mAssets/Terra stablecoins worth 150% more than the asset’s value.
Terra users earn rewards by staking LUNA (native coin) in the ecosystem. The way Terra pays is by combining taxes, siegniorage rewards, and computing/gas fees. Taxes serve as stability fees, while transaction fees of 0.1 to 1% help bolster staking rewards for liquidity providers.
Terra operates on the Delegated Proof-of-Stake concept. This concept is a technology-based democracy using a consensus algorithm for the voting & election process. The aim of using DPoS is to secure a blockchain against malicious or centralized usage.
Terra uses DPoS to facilitate the approval of the transaction and the addition of blocks to its ecosystem by Validators. For any user to become a validator, he/she must hold a huge amount of LUNA. But if they can’t, users can still engage in staking for passive rewards.
Terra uses GAS to facilitate the execution of smart contracts on its network. This is a way to reduce spam transactions and also a way to incentivize miners to keep executing the contracts.
The use of GAS is prominent on blockchains like Ethereum as users even opt to pay higher GAS fees to ensure that miners push their contracts ahead of others on the network.
- Community-based Governance
On Terra, validators are given the right to vote on decisions regarding important network updates. The network update can be anything about upgrades, technical changes, fee structure changes, etc.
Terra’s method of governance helps to ensure consensus support when a proposal is raised on the network. Also, it enables the community to vote on proposals raised by Validators for approval.
Terra (LUNA) Phases
There are three stages in using LUNA.
- Bonded LUNA; this the staked stage of the token. In this stage, the token keeps generating rewards for validators and delegators to who the token is bonded. Also, bonded LUNA is usually locked in Terra and won’t be used for trading.
- Unbonded LUNA; these are tokens that have no restrictions. Users can transact with them just like other tokens.
- Unbinding; this a stage whereby the token cannot be traded, staked, or expected to generate any rewards. The unbinding stage lasts for twenty-one days, and afterward, the token becomes unbonded.
Benefits of Using Terra (LUNA)
There are many things to gain by using Terra. The protocol is very functional due to its permissionless and decentralized nature, which suits many players in the industry. Also, everything about its payments, infrastructure, and logistics, suits stablecoin and Dapp developers as it simplifies their work.
Other benefits of Terra include:
- Terra is easy to program for developers
Programmers find it easier to use Rust, AssemblyScript, and Go to develop smart contracts. Also, they can rely on network oracles to improve the functionalities of their Dapps. Oracles make it easy for blockchain networks to discover prices for more functional operations.
They gather real-life or off-chain data to facilitate smart contracts. Oracles bridge the gap between the outside world and blockchains. Terra allows programmers to build better Dapps through its network oracles.
- It Simplifies Financial Operations
According to the founders of Terra (Luna), the network aims at simplifying the operations of transactions in the crypto market. The network works to reduce the dependence on third parties such as banks, payment gateways, and even credit card networks.
Terra’s single blockchain layer makes it easy for users to complete financial transactions without incurring high fees.
- Terra Facilitates Interoperability
Terra network is a multi-chains protocol. It can communicate seamlessly with other blockchains through the Cosmos IBC. The protocol is a typical example of blockchain interoperability. Blockchain interoperability means the ability of a network to see information and access them on many blockchain systems.
It means that many decentralized networks can communicate easily amongst themselves. Terra is presently running on Solana and Ethereum, and developers are making moves to operate on other blockchains soon.
The Tendermint consensus is powering the existence of Terra. Tendermint secures its network through validators. The validators are responsible for consensus on the ecosystem and also run full nodes. They’re in charge of committing new blocks to Tendermint and earn rewards for doing it. Validators also participate in governing the treasury. However, every validator’s influence depends on the level of their stakes.
On Terra, the number of validators must be at least 100, and it’s only those who made the cut that serves as validators. If any of them doesn’t appear online all the time or double-signs, they’re risking the LUNA, which they’ve staked on the platform. This is because the protocol can slash the LUNA on the grounds of misbehavior or negligence penalty.
These are users holding the LUNA token but don’t want to become validators or can’t even if they want to. These delegators depend on the “terra station” website in delegating their LUNA tokens to other validators for staking revenue.
Since they receive some revenues from the validators, they also get a part of the responsibilities from the delegators. By so doing, if a validator is penalized for misconduct and gets his/her token slashed, the delegators pay some of the penalty too.
Therefore, the best advice for delegators is to choose their target validator wisely. Also, if you can spread your stakes on many validators on the network, it’ll be better than depending on one sluggish and careless validator. Moreover, if a delegator can monitor the activities of his/her validator, it’ll alert him/her when to change to a more responsible one.
Slashing Risks on Terra
This is a risk associated with the position of a validator on Terra. Given the importance of validators on the network, they’re expected to always act responsibly to protect the system and their delegators. But when the validators fail to act or perform as expected, the system slashes their stakes on the network, affecting the delegators.
Three of the common conditions of slashing on Terra includes:
- Node downtime; a case of non-responsiveness by a validator
- Double signing: when a validator uses one chain ID at one height to sign 2 blocks
- Many missed votes: failure to report the number of votes in the weighted media in the exchange rate oracle.
Another reason for slashing is when a validator reports the misbehavior of another validator. The reported validator will be “jailed” for some time, and the network will also slash his/her staked LUNA after a guilty verdict.
The network has many stablecoins pegged to different fiat currencies. These stablecoins can be used to make eCommerce payments. Every payment from Terra gets to the merchant’s account in 6 seconds or less for a fee of 0.6% to the network.
If you compare these charges to the usual credit card payments, you’ll notice a huge difference. Whereas the former charges only 0.6%, the latter charges 2.8% plus. This is why Terra has been growing in its payments and revenues generated from processing the payments.
For instance, the network made $3.3million in revenues by processing $330 million payments to many merchants.
Price Stabilization for Terra
One way through which stablecoins on Terra stabilize their prices is by following the market demands to adjust their supplies. Whenever the demand rises, there’ll be an increase in terra stablecoin price too. But to stabilize the asset, the network ensures that the supply matches the demand by minting & selling Terra to the market.
This approach is known as fiscal expansion. Terra focuses on using market forces to stabilize its stable coins. It uses elastic monetary policies that change rapidly to any price deviations and imbalances between supply or demands in the market.
Miner Incentive Stabilization
For Terra to continuously stabilize its stablecoins, the network must ensure that the miners are adequately incentivized. Miners must stake their LUNA holding no matter the prevalent market conditions. The reason is that for Terra’s price to remain stable, the demand must be at a certain level no matter how volatile the market is at that time.
This is why the miners must be encouraged to mine continuously to cushion the volatility arising from an increase in LUNA prices. So, miners must stake at all times to keep the economy running. But to do that, their incentives must be stable too, no matter the conditions in the market.
Fueling Innovation of Money
One of the things driving Terra is its capacity to convert fiat currencies to LUNA. Luna also collateralizes Terra and stabilizes it through arbitrageurs’ actions of resolving prices when extracting profits since they do it in Terra & LUNA.
The balancing action usually necessitates the exchange of value between currency & collateral. Long-term investors in collateral are Luna holders or the miners absorb the short-term volatility to gain mining profit & steady growth.
Those who hold the stablecoin pay fees on their transaction, and these fees go to the miners. By these continual balancing actions, Terra/Luna will keep functioning. However, there must be enough value in them to facilitate the action.
All about Terraform Labs
Terraform lab is a South Korean-based company that Do Kwon & Daniel Shin established in 2018. The company had a $32 million funding backup from Coinbase Ventures, Pantera Capital, and Polychain Capital. With these resources, the company released LUNA stablecoin and created Terra Network, a decentralized global payment network.
Terra offers a lower transaction fee and completes a transaction within 6 seconds. Even though the system is yet to gain momentum in America and Europe, Terra users are more than 2 million already. Also, the network boasts of $2 billion transactions every month. Terra is using CHAI and MemePay, all South Korean platforms presently, to complete transactions.
One unique thing about LUNA is that it gives back all the yields from transactions to holders. Most of these yields are transaction fees paid on the system.
Governance on Terra falls in the lap of LUNA holders. This system empowers them to enforce changes on Terra through consensus support for their proposals.
Community members are responsible for creating proposals and submitting them for the Terra community to consider. Sometimes, once the community approves any proposal through votes, they’re automatically applied. These proposals may often include changing blockchain parameters, adjusting tax rates, updating reward weights, or even removing funds from the community pool.
But when it comes to most issues such as massive changes in the directions of the operations or other decisions that need human involvement, the community will vote. However, the person in charge must submit a test proposal. He/she will create it, make some deposits in LUNA and reach a consensus through the voting process.
How to Buy Terra (LUNA)
The top three brokers where to buy Terra include, Binance, OKEx, and Bittrex. You can buy Tera with your debit card, Bitcoin, or your credit card on the exchanges.
The main reason to buy Terra on Binance is that the exchange fees are lower and the liquidity. Also, due to the high liquidity level, you can buy & sell as fast you need to for profits.
This exchange is great if you’re transacting from Asia. The platform supports different currencies in Asia, such as the Chinese Yuan. Also, OKEx facilitates high-volume Terra investment.
Bittrex is a go-to shop for all kinds of cryptocurrencies. They’re leading when it comes to providing multiple crypto options for investors like you. Bittrex doesn’t charge any listing fees for projects, and they’re trustworthy.
You can also buy Terra from our trusted brokers.
How to Store or Hold Terra “LUNA”
The best place to store Terra or hold Terra is on a hardware wallet. If you want to invest hugely in LUNA or keep the coin for many years waiting for a price increase, use an offline storage method.
A hardware wallet or cold storage is a method of storing cryptocurrencies offline. The advantage to cold storage is that it protects your investments from cybercriminals. While hackers can compromise other forms of crypto storage, they can’t access your offline wallet.
There are many types of hardware wallets to consider, such as Ledger Nano S, Trezor Model T, Coinkite ColdCard, Trezor One, Billfold Steel BTC Wallet, etc. Any of these wallets can keep your LUNA coins safe from hackers and cybercriminals.
What Future Holds for Terra?
Crypto experts predict that Terra will experience a monumental price surge in years to come. Terra’s price predictions from 2021 to 2030 look promising. So, investing in Terra LUNA and holding it for years seems like a good investment.
Notably, no one can predict the perfect movement of any cryptocurrency. That is why there are still some varying prediction results about Terra.
However, Terra has brought a new set of concepts to the crypto market. Its self-adjusting supply mechanism encourages global adoption and support by crypto enthusiasts.
Even though there’s no one accurate prediction of its future prices, Terra’s value and adoption have been rising gradually.