Putting your Terra $LUNA to work

Putting your Terra $LUNA to work

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Jonathan
Jonathan

An editor at Coincrop


19 Jan 2022 | 9 min read
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T

erra is a blockchain project created by Terraform Labs that powers the apps and cryptocurrencies. These cryptocurrencies include the Terra U.S. Dollar that is pegged to the U.S. dollar through an algorithm.  

In this guide:

Disclaimer: All of the information written on Coin Crop is without influence and based on our analysis. No guarantee is offered concerning the accuracy of this information and therefore, any individual following up on it does as such completely at their own risk. Rates are correct at time of publication.

What is Terra Luna?

Terra is described as a blockchain platform for payments which utilises algorithmic stablecoins – these are cryptocurrencies that track the price of fiat currencies or other assets.  The Terra blockchain enables uses to trade, save, spend or exchange stablecoins.

The blockchain platform can be used to develop applications that then run on its decentralised network. The technology used to secure the network is the established proof of work (PoW) method.

The protocol creates stablecoins that persistently track the value of any government backed fiat currency. There are two cryptocurrency tokens – Terra and Luna:

- The base Terra stablecoin follows the value of the IMF’s SDR (Special Drawing Rights) and is referred to as TerraSDR or SDT. Additional stablecoins include TerraKRW (KRT) which follows the South Korean won and TerraUSD (UST) which follows the U.S. dollar. It is possible to mint new Terra by burning Luna.

- Luna is the mining and governance token which is staked in order to absorb any price volatility in the associated stablecoins.

At the time of writing, Terra has a market capitalisation of $28 billion ranking it 9th amongst other cryptocurrencies.

Who are Terraform Labs?

Terra began life in 2018 when co-founders Daniel Shin and Do Kwon formed Terraform Labs. Kwon is a former Microsoft employee and Shin is head of Chai an online payments provider and Terra partner.

No money is made from transactions made using the associated tokens.

How does it work?

Most other blockchains do not order the nodes that compromise the blockchain. In contrast, Terra organises its nodes into an ordered fashion. Data is delivered from the first node to the last node in no longer than 3 seconds. This is made possible by connecting the nodes to one another using a special connection that examines the similarity of the addresses.

In regard to the value of the stablecoins, it is established from the stability of the associated price peg which avoids volatility issues. The price of the Terra stablecoin is maintained by making sure that demand and supply are always balanced.

Luna can be thought of as the variable counterweight to the Terra stablecoin adjusting for any price volatility. Consider a pool consisting of Terra and Luna. To ensure that the price of Terra is maintained, the Luna supply pool adds to or subtracts from Terra's supply - users then burn Luna to mint Terra and burn Terra to mint Luna. 

All of this is made possible by algorithmic market module which is part of the protocol – this gives incentive to the burning or minting of Terra through opportunities in arbitrage. 

Changes in the Terra pool works as follows:

- Expansion occurs when Terra is valued at a price than is greater relative to its pegged value – i.e. stablecoin demand is greater than supply therefore the supply of Terra should be increased to meet this demand. The protocol works to burn Luna and mint Terra thereby reducing the price of Terra and increasing the Luna price by lowering its supply. This process continues until Terra exchanges at its targetted pegged price.

- Contraction takes place when Terra is exchanging at a price lower relative to its pegged value – i.e. there is greater supply for the stablecoin than demand from users. This requires decreasing the supply of Terra until it is in parity with demand. Users are incentivised to mint Luna and burn Terra which consequently increases the Terra price as the supply is decreased and reduces the Luna price and increases its supply. This process continues until Terra exchanges at its target price.

Top LUNA saving rates

Below are some example of returns that can be earned by saving your Terra $LUNA:

OrganizationTermsRatingAPY Rate
OKExFixed (5 days)

73.0%

OKExFixed (7 days)

56.0%

NexoFlexible

8.00%

CelsiusFlexible

6.21%

NexoFlexible

6.00%

CelsiusFlexible

4.93%

GeminiFlexible

4.52%

The best LUNA staking rates

Below are some example of returns that can be earned by staking your Terra $LUNA:

OrganizationTermsRatingAPY Rate
MyContainerFlexible

15.8%

StakinFixed (21 days)

8.38%

UnagiiFlexible

8.18%

EverstakeFixed (7 days)

8.00%

Chorus OneFlexible

7.36%

StakyFixed (1 day)

6.98%

P2P ValidatorFlexible

6.00%

Future plans

To date, Terra has found most growth in South Korea where individuals purchase goods at stores using the Chai payment app. The goal of Terraform Labs is to use the blockchain and associated cryptocurrencies to build a financial system that has independence from fiat financial apps and major banks.

In 2021 $150 million of capital commitments were made by a number of major crypto investors. The Terra Ecosystem Fund is intended to be used to create protocols and applications on the Terra network.

Regulatory issues

The Securities and Exchange Commission announced on 12th November 2021 that an action had been filed against Terraform Labs and CEO Do Kwon. They were instructed to complex with subpoenas for testimony and documents associated with the Mirror Protocol. This protocol was launched by Terraform Labs in 2020.


Jonathan

Jonathan

An editor at Coincrop
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