In other words, algorithmic stablecoins are cryptocurrencies that monitor the value of other assets or currencies, and Terra is an open-source blockchain payment platform for them. Terra stablecoins may be spent, saved, traded, and exchanged instantaneously on the Terra blockchain-powered by Ethereum.
The Terra protocol generates stablecoins that follow the price of any fiat currency continuously (a government-backed currency such as the U.S. dollar or euro). It is composed of two primary cryptocurrency tokens, Terra and Luna, each of which has the following characteristics.
- Open-source blockchain system Terra powers algorithmic stablecoins and a growing network of financial apps.
- In addition, Terra is one of the two primary cryptocurrency tokens supported by this system, along with Luna.
- In addition to tracking fiat currency, Terra stablecoins are utilized for governance and mining.
- The Terra protocol keeps the Terra stablecoin’s price stable by balancing supply and demand. As the variable counterbalance to the Terra stablecoin, Luna achieves this.
These are stablecoins named after fiat currencies. For example, TerraSDR, or SDT, measures the price of the IMF’s Special Drawing Rights. TerraUSD (UST) follows the US dollar, whereas TerraKRW (KRT) tracks the South Korean won. Burning Luna creates fresh Terra.
Luna is the Terra protocol’s staking token, absorbing the price fluctuation of Terra stablecoins. Users stake Luna to Terra blockchain miners (called “validators”) who record and validate transactions on the blockchain. Luna’s value improves with Terra use.
How To Work Terra?
The Terra protocol ensures that supply and demand are constantly balanced.
Luna is a volatile stablecoin that stabilises Terra. Imagine a Terra “economy” comprising Terra and Luna lakes. The Luna supply pool contributes to or subtracts from Terra’s supplies. The protocol’s algorithmic market module promotes Terra minting or burning.
As a result, demand for Terra outstrips supply, and supply should be increased to match demand. The protocol encourages users to mint Terra and burn Luna, increasing supply and lowering Terra’s price (by reducing its supply). Users arbitrage until Terra hits its pricing objective.
Contraction occurs when Terra’s price falls below its peg, signalling that supply exceeds demand. Terra supply would be reduced to suit demand. The protocol then pushes users to burn Terra and mint Luna, lowering Terra’s price and rising Luna’s (by increasing its supply). Repeat until Terra achieves its target price.
What Is Terra’s Market Cap
Terra (LUNA) had a market value of $32.1 billion on February 28, 2022, ranking 7th among all cryptocurrencies. At $12.9 billion, TerraUSD was the fourth most valuable stable coin.
- Terra rewards validators (Terra blockchain miners) and delegators (people who wish to get rewards without operating a complete node) with two types of staking incentives.
- To offset the costs of processing and preventing spam, validators may establish their own minimum gas prices.
- Suppression of market volatility by transaction fees. Spread costs are a percentage charge imposed to each trade between Terra stablecoins, with a minimum of 0.5 percent.
Terra was created by Do Kwon and Daniel Shin of Terraform Labs in South Korea in 2018. Former Microsoft and Apple employee Kwon founded Anafi, which provides decentralized wireless mesh networking solutions. Shin is the founder and CEO of Terra partner Chai and co-founder of Korean e-commerce startup TMON, commonly known as Ticket Monster. 78
The business case for Terra is presented in an April 2019 white paper co-authored by Do Kwon. As a price-stable cryptocurrency, Terra combines the most significant attributes of fiat currencies and Bitcoin (BTC), whereas a successful new digital currency has to maximize adoption to become useful as a means of trade. Fiat and blockchain economies need a decentralized, price-stable money system, which might be the ideal use case for cryptocurrencies.
Frequently Asked Questions
What is the Terra Ecosystem Fund, and how does it work?
This Fund will be used to build apps and protocols for the Terra network, supported by the Terra Foundation. The Fund is backed by financial pledges totaling $150 million, which have been committed by large cryptocurrency investors for the year 2021.
Do you think Terra is a cryptocurrency or a blockchain?
It’s a combination of the two. Tera is the name of a blockchain protocol that is free and open-source, and stablecoins, a kind of cryptocurrency created using this protocol.
What prompted the Securities and Exchange Commission to begin? a demand enforcement action against Terraform Labs and its CEO?
Over the ecosystem project Mirror Protocol, the Securities and Exchange Commission filed a subpoena enforcement action over the ecosystem project Mirror Protocol against Terraform Labs and its co-founder and CEO, Do Kwon. The program enables the creation of digital assets, referred to as assets, that are designed to replicate real-world assets, such as the price of U.S. stocks. It is being investigated whether the company and/or Kwon violated federal securities laws by, among other things, not registering their offer and sale of securities on a national securities exchange, selling Outside of a national securities exchange, acting as an unregistered broker or dealer, or engaging in securities transactions as an unlisted investment company, according to an SEC litigation release.