One of cryptocurrencies’ biggest effects on the world is the emergence of several blockchain networks. With these, investors’ lives became easier thanks to their unique features that solve problems involving privacy and volatility. One specific blockchain that’s worth your attention for its stablecoin specialisation is Terra.
Terra is a blockchain network that creates different stablecoins to offer investments that are much less volatile than other cryptocurrencies. However, instead of the usual stablecoins that use fiat as reserves, Terra’s coins make use of the network’s native cryptocurrency called, Luna. Keep on reading to learn more about the network and how it works.
A brief history of Terra
For you to better grasp the concept of Terra, you need to know how it started first. Launched back in 2018 by Do Kwon and Daniel Shin, it was created to eliminate the usual issues several stablecoins were facing, one of which was centralisation.
To achieve this goal, the blockchain uses a unique Decentralised Financial infrastructure that removes banks and other central authorities from the picture.
How does Terra cryptocurrency work?
As was mentioned earlier, the main niche of Terra is that it lets users create stablecoins that are pegged to different fiat currencies such as Japanese Yen, Euros, US Dollars, etc. To create these stablecoins, the network primarily uses smart contracts utilising a seigniorage mechanism.
Other things you should know to get a better understanding of the network include:
Tendermint Delegated Proof-of-Stake
Terra’s blockchain network uses a Tendermint Delegated Proof-of-Stake (TDPoS) mechanism to validate each transaction. This process can be compared to what mining is to Bitcoin in the sense that random validators are chosen to process the transactions and secure the network.
Users called ‘delegators’ can also stake their LUNA tokens, the Terra cryptocurrency, in their validator of choice. As delegators, they should thoroughly choose a validator who they think will put in honest work in the network. In return, these randomly selected validators along with their delegators will be rewarded with a specific percentage of LUNA tokens which they can use in the Terra network.
One of LUNA tokens’ main uses in the Terra Network is to mint various stablecoins. If you want to create or mint a specific amount of stablecoins, let’s say 100 US Dollars worth of TerraUSD (UST), you’d have to convert an equal amount of LUNA tokens first.
For example, if you’re trying to create a stablecoin that’s worth $100 and let’s say a LUNA token is worth $25 each, you’d have to burn 4 LUNA to complete the minting process. Burning is what the Terra network does to each LUNA token you supply and in return, you’ll be given the equivalent amount of stablecoin.
Features of Terra cryptocurrency
For the Terra network to function the way it does, it makes use of various features that not only maintain the networks but also benefit the users. This includes:
A great reason to invest in the Terra network is that it rewards token holders with interest and allows them to make short-term loans. These are all possible due to the network’s Anchor Protocol.
When holding tokens in Terra, you receive saving account interests in return since your funds are loaned to others. In relation to this, every holder is eligible for short-term loans. As with every loan, it will require you to put in collateral and thanks to this protocol, you can use your liquid-staked PoS assets from other blockchains.
The main feature that draws users into the Terra network is its selection of stablecoins. As of the time of writing, users can enjoy a variety of fiat-pegged stablecoins with one of the most famous ones being TerraUSD, a coin that’s directly pegged to the United States Dollar.
Other stablecoins found in the Terra Network include:
- TerraSDR (SDT) – A coin pegged to The International Monetary Fund’s Special Drawing Rights (SDR).
- TerraKRW (KRT) – A coin pegged to the Korean won.
- TerraMNT – A coin pegged to the Mongolian tugrik.
With the Mirror Protocol, users can create synthetic assets called Mirror Assets (Massets) through the use of smart contracts and blockchain technology. You can think of these assets as NFTs where users can mint their work to gain profit. In the case of Terra network, minting can be done in a decentralised manner by depositing collateral.
What is Luna?
LUNA is the native token in the Terra network. It plays a huge role in maintaining the network and features major uses including:
Pay network fees
One of LUNA’s main uses is to serve as a utility token for the network. For every transaction you make within Terra, a specific amount of LUNA will be charged. Moreover, it’s also the token used in the TDPoS consensus mechanism where validators process different transactions in the network.
Terra lets you take part in the network through using LUNA as governance tokens. You can stake these tokens and then create or vote for suggestions and proposals that can improve the network’s overall performance.
For stablecoins to achieve a more stable price and avoid demand fluctuations, LUNA is used as a means to absorb the impacts of the volatile market. Whenever something goes wrong on the Terra platform that would lead to price fluctuations, LUNA will serve as a mechanism for volatility absorption. This is done through a smart contract-based algorithm that involves ‘burning’ or permanently destroying LUNA to mint new stablecoins.
Benefits of using Terra
If you’re looking for more reasons to invest in Terra cryptocurrency, here are two of the best benefits that come with taking part in this network:
Simplifies transactions in the crypto market
Since Terra’s inception, its developers have always aimed to simplify transactions in the crypto market. They’ve achieved this by not overly relying on third party authorities such as credit card networks, banks and other financial institutions. As a result, you’ll only need to go through one process instead of numerous ones.
Additionally, thanks to its single blockchain layer, users can enjoy transactions without having to worry about extremely high amounts of fees.
It’s accessible on several blockchain networks
The huge benefit that comes with Terra is its interoperability. In simpler terms, the network can be accessed through different blockchain systems. As of the time of writing, Terra runs on both the Solana and Ethereum blockchains but its developers are working on making it accessible on other blockchains.
Should you invest in Terra?
If you’re looking to invest your spare funds but fear the volatility that comes with cryptocurrency, then investing in Terra cryptocurrency, LUNA, is a great idea. This native token can be pegged to various stablecoins such as the US Dollar (USD), Canadian Dollar (CAD), Japanese Yen (JPY) and Euro (EUR). Additionally, it also offers the usual benefits of stablecoins with the most obvious one being a far less volatile currency.