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Over the past year, the Terra project has enriched the portfolio of its investors. It has only been since the start of 2021 that the LUNA cryptocurrency has risen by over 4,500%. Additionally, Terra climbed significantly into the top cryptocurrency by market cap and secured the well-deserved eleventh place. How is the LUNA token and the Terra ecosystem as a whole unique? Let’s find it.
Decentralized stablecoins behind Terra
The crypto world has grown fed up with this wild price volatility as it has become a major barrier to crypto adoption. In addition, the issue of cost of fees takes a turn. In traditional banking systems, intermediaries take up to 5% of each transaction. Terra reduced transaction costs to 0.5%.
Now, Terra is a successful financial platform serving next generation decentralized applications. The Terra protocol offers a special solution: decentralized coins issued on a single platform. Initially, Terra launched six stable coins indexed to the USD, EUR, CNY, JPY, GBP and KRW. In the Terra ecosystem, these are named TerraUSD (or UST), TerraEUR, TerraCNY, etc. New fiat currencies can be added by user votes.
Terra Stable Coins offer affordable cross-border exchanges and instant exchanges between internal tokens at extremely low fees and great rates. This means that you can exchange UST for TerraCNY in seconds without any middleman.
LUNA token, explained
While Terra Stable Coins provide excellent cross-border transaction throughput and instant internal exchange, the LUNA token serves as a utility and governance token. It has two main objectives:
- Ensure the price stability of stable coins;
- Be part of validator staking via Proof-of-Stake.
As mentioned above, the LUNA token serves as a protection against the price fluctuations of the Terra cryptocurrency. It also keeps the price of coins at 1 SDR (Special Drawing Rights). The SDR is an international reserve asset whose price is determined by the value of the US dollar, Chinese yuan, Japanese yen and British pound sterling at a ratio of 41.73%, 30.93%, 10 , 92%, 8.33% and 8.09%.
So if the price falls below the target level of 1 SDR, the protocol buys 1 Terra coin, while selling LUNA worth 1 SDR, and if the price exceeds 1 SDR, the protocol sells 1 Terra coin, all by winning LUNA worth 1 SDR.
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The next thing is the protocol which is based on the Proof-of-Stake consensus mechanism. This means that users (minors) can hold LUNA tokens on the network to get a reward. This process is called staking.
How to use and store Terra Stablecoins and LUNA?
Terra partners and customers access Terra’s blockchain network directly through their own wallet called Terra Station. It allows users to interact with many decentralized Terra-based applications (dApps) built on the platform to exchange tokens, delegate LUNA tokens to validators, and manage funds.
Terra’s API allows merchants to personalize their business using payment integration with Terra Station for instant purchases and payments. It is available for mobile devices and as a web version.
Impressive price performance from LUNA
At the end of August 2021, the Terra token increased by 327% in one month and renewed its price to the highest. The growth of the digital coin has been associated with the upcoming Terra Columbus-5 blockchain update, which took place on September 30.
As we can see from the price chart, the growth is impressive. Needless to say, for the past year, the token has gained over 13,000% and enriched the portfolios of its early investors. All in all, LUNA enables a truly democratic economy which can make different fiat currencies borderless.
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