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Technical Overview of Terra (LUNA) and the Stablecoin Economy

  • Author

    Coinhunt CC

  • Reading time

    6 min read

  • Published

    5/1/2022

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We have examined the Terra (LUNA) project, which has been a great success in terms of price and performance since 2020. In our article below, you can find the technical details of the project, the working mechanism of Terra, its place in the stablecoin economy, and much more valuable information.


Terra is a programmable and decentralized payment blockchain. The protocol makes it possible for online sellers and buyers to process extremely low-cost payment transactions. There is an ecosystem that develops around this protocol, and thanks to the open infrastructure, unlimited dApps can be created within the ecosystem.

Having partnerships with more than 20 e-commerce companies, including Woowa Brothers, Qoo10, Tiki, and Carousell, Terra has partnered with BC Card for financial services and CHAI for mobile payment services. Investors participating in the $150 million ecosystem fund are Lightspeed Ventures, Galaxy Digital, Arrington Capital, BlockTower Capital, and Hashed.

With Terra's latest update, Columbus-5, tokenized asset transfers between Ethereum and BNB Smart Chain networks will now be made easier thanks to the Wormhole Token Bridge. Mutual insurance protocol Ozon will be integrated into the blockchain. Some of the transaction fees will be burned and there will be a mainnet upgrade on the blockchain. Protocols in the Terra ecosystem currently have over $25 billion in total value locked (TVL). Terra's strategy to create an interoperable and user-friendly payment platform, combined with the stablecoin ecosystem, makes Terra an attractive alternative for payments and money transfers around the world.


Advantages of Using Terra

Terra has a system with an average block time of six seconds. Terra has low gas fees where the minimum price is set by each validator on the blockchain. We mentioned that Terra is developing Terra Bridge for interoperability with BNB Smart Chain and Ethereum. The developers of the platform are working to integrate Terra stablecoins into the Solana network as well.

Two projects that contribute to the Terra ecosystem are Anchor and Mirror Finance. Thanks to the Anchor Protocol, we can participate in liquidity pools with stable interest rates and directly participate in the Proof-of-stake blockchain network. With Mirror Finance, we can easily buy and sell stocks using UST. The prices of stocks are indexed to real prices, just like stablecoins. Synthetic assets called mAssets can also be used on the Ethereum network, thanks to the Mirror's Shuttle bridge.



What is LUNA?


LUNA is the native coin used for collateral, stablecoin staking and governance in the Terra protocol. LUNA holders can stake their assets to take advantage of impressive interest rates, as well as vote on changes and updates in the network, with voting rights up to the LUNA they own. Terra (LUNA) is the 7th highest cryptocurrency by market cap. With a maximum supply of 1,000,000,000, LUNA directly represents one of the most valuable smart contract platforms. TerraUSD (UST) is fourth among USD stablecoins after Tether, USD Coin and Binance USD.

LUNA is a crypto responsible for the stability of Terra stablecoins. Terra's stablecoins include TerraSDR, TerraEUR, TerraJPY, TerraKRW, TerraUSD, TerraCNY, and TerraGBP.


How Terra Works


Let's say you want to buy something with CHAI, one of the most used dApps in the Terra ecosystem. You have the chance to mint as many stablecoins as you want from the Terra platform. Once you've minted as many stablecoins as you need, you can spend them however you want using the CHAI mobile app. When you buy something with stablecoin, this spend is processed on the Terra network. The small transaction fee that will be taken from you is also distributed to the miners who stake with the DPoS method on the Terra blockchain.

Built with the Cosmos SDK, Terra uses a delegated proof-of-stake consensus to secure transactions on the network by decentralized validators. The 130 active validators with the most LUNA tokens are chosen by the network as security providers. In the Terra network, algorithmic protocols are used to maintain the stability of stablecoins. LUNA is also used so that 1 UST is always worth 1 USD. Stabilization is achieved immediately by minting or burning the LUNA in price changes. Algorithmic stablecoins are secured by smart contract algorithms, market incentives, and financial engineering.

The UST was priced at $0.96 on October 10, 2020, $1.04 on February 1, 2021, $0.96 on May 24, 2021, and $1.02 on August 20, 2021. The reason for these prices is the volatility of the crypto market and sudden price changes. Users who want to buy or sell crypto urgently can volunteer to buy or sell these stablecoins at a slightly higher or lower price on cryptocurrency exchanges. UST isn't the only stablecoin to experience this, even Tether has experienced price changes from time to time.


Terra Station


Terra is a layer-1 blockchain protocol and fintech ecosystem with smart contract functionality, protected by internal algorithms, capable of creating algorithmic stablecoins. Behind the ecosystem are South Koreans Do Kown and Daniel Shin. Terra Station is the official crypto wallet that allows LUNA owners to be involved in the management of the network. It can be used both as a browser extension and as a mobile app.

Thanks to Terra Station, you can view many on-chain data such as the number of active users in the network, stake rates and transaction fees. You can check the LUNA rewards you have earned in the coin staking section and take an active part in every step of the DPoS consensus mechanism.



Terra Name Service


Terra Name Service (TNS) is a domain name platform. The main purpose of this system is to produce a solution to the long and memorable structure of terra wallets. You can transfer the asset you want by simply entering the domain name you own. It was developed in 2021, inspired by the Ethereum Name Service. It has made a name for itself with its airdrop to domain name owners.


What is the Delegated Proof of Stake Consensus Mechanism?


The Terra network was created using the Cosmos SDK and chose the Tandermint DPoS consensus. Developed as an environmentally friendly alternative to Proof of Work, this consensus mechanism uses a group of 130 validators to process transactions. Everyone stakes their LUNA through a validator they believe will handle network transactions honestly and fairly. Verifiers can set a rate for the number of prizes they will distribute to LUNA holders. Staking LUNA has an average annual interest rate of 7-9%.

Government regulations directly target stablecoins. Because countries are creating their own CBDCs and they don't like stablecoins that are not under their control. The untraceable and non-taxable stablecoin ecosystem annoys governments. When the uncertainties in front of this situation are overcome, the Terra blockchain may have the chance to reach its true potential.


 

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