Terra - the crypto game changer?
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An editor at Coincrop
10 Mar 2022 | 10 min read
erra (LUNA) is a decentralized financial infrastructure and blockchain protocol that introduces some unique concepts and theories into the market. The network leverages a native token, stablecoin protocol, oracle system, and smart contracts to bring users programmable money for the internet.
In this guide:
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With the best intentions, crypto is not used for daily transactions, its either a form a savings or used for trading. It is not used for daily transactions yet and this is how it differs from Fiat.
With the volatility of crypto currency why would you use your bitcoin to by a loaf of bread, when it can go up or down many $100’s a day.
What do us normal people (who get crypto) want from a coin? For me it is something I can use daily, just like fiat, I want to be able to go shopping, by food, petrol, coffee, clothes, whatever I want.
However, here lies another issue, as most crypto currencies are pegged to the US Dollar, what happens if I live in Mongolia or South Korea somewhere else where the USD is not a daily tender option? This is where Terra (UST) a Stablecoin comes in, as it pegged to that counties value, giving you access to your daily consumables but pegged to your local currency, and this can be done with many other countries.
Further to this when you buy something with your Fiat currency, you know that the price of that item is pretty much fixed, for instance, a loaf of bread is $1.00 but with crypto that price could be $0.90c and 30 minutes later it could be $1.10c in our daily consumption we do not want volatility, we want stability.
What we all really want from cryptocurrency is to be able to use it in our everyday life, leaving the shackles of the traditional financial system behind.
But Terra (LUNA) could be about to change all this, with the Terra Stablecoin as it pegs itself to many currencies around the world, on a 1 to 1 basis. More countries can be minted at any time through a democratic voted. These Stablecoin that are pegged to a currency to remain stable.
When there is a transaction on Terra, a small transaction fee is paid out to the stake holders, currently the total transaction fee of the Terra network exceeds all other Blockchains apart from Ethereum and Bitcoin.
And as more and more people use the Terra applications through payment applications, savings protocols, and other DApp and DeFi Luna stakeholders earn more fees, and is also making Luna more valuable. Further to this the Luna stake holders also sit in the driving seat for the Terra decentralized economy and they control the Blockchains governance, they directly proposing and voting for changes to the blockchain policy this also includes software upgrades.
How it works
Terra UST works just like other crypto currencies as in if demand for it is high, its values rise, but when demand is low, it falls, but by them expanding the pool when the price is high, it drops the pool down to the $1.00 mark equalising the stable coin and keeping it stable. But how do they increase the quantity of UST? The simple answer is they have designed a machine to swap $1.00 of Luna for $1.00 of UST.
Investors who predict that UST will be more useful in the future (speculators) can buy and hold LUNA. When the value of UST goes above $1.00 a LUNA holder can swap $1.00 of Luna for 1 UST and can then sell each unit of UST for the profit the UST has gained above $1.00, and the newly introduced UST expands the pool bring the UST price goes back down to $1.00. Now LUNA is scarcer, and it is now more valuable. But when the price of UST is lower than $1.00, they can then swap their UST for LUNA, reducing the UST pool and this will bring the pools value back up to $1.00.
In the longer-term UST will become more popular, but in the short-term Luna holders are rewarded for the short-term risks of volatility. When the machine that swaps LUNA for UST, and a certain percentage is burnt and the rest lands in a community pool and the UST is printed, this process is called “Seigniorage”.
As demand grows for Terra it will force the UST above the $1.00 peg which means that more Luna will need to be swapped for UST to stabilize the price. This leads to LUNA becoming more and more valuable and the funds within the community pool and then reinvested to build more apps that use UST, creating the cycle of growth for both UST and LUNA.
In summary the LUNA token is constantly adjusting to keep the price of the Terra UST token at $1.00 by burning and minting coins to ensure the supply and demand is consistent.
With this cleaver eco system and the ability for it to be pegged to a Fiat currency this leads to endless possibilities of how to use UST in a daily scenario, which is the most exciting thing to come out of the crypto arena a good while for general use.
Terra saving products
The following savings products are offered by a number of providers in order to earn rewards on your LUNA tokens.
Terra staking products
The following staking products are offered by a number of providers in order to earn rewards on your LUNA tokens.
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