What Exactly is Terra and the Luna Token

What Exactly is Terra and the Luna Token 

The Terra (LUNA) project combines an advanced blockchain, two cryptocurrencies, and a varying monetary supply mechanism to create a unique stablecoin. The developers behind the project envision the network powering the next generation of stablecoins and Web 3.0 interactions. As such, the developers coined the phrase "programmable money for the internet" as a means to best describe the project’s goals.

A Look at the Tech behind Terra (LUNA)

Terra tokens are stablecoins minted by users. Terra stablecoins can track all types of fiat currencies without requiring any fiat to be held. The system leverages a combination of off-chain price oracles and smart contracts to monitor the prices of these assets. 

At the core of the Terra protocol is an elastic monetary supply protocol. This flexibility helps the platform to provide a higher level of stability and more transparency. Unlike other stablecoin options such as gold or fiat-pegged tokens, the entire Terra process occurs on-chain. This structure provides users with more transparency. 

For example, when you look at other stablecoins that rely on off-chain assets, it becomes obvious that there is a need to trust a third party. At the very least, you will need to trust that the firm has the backing listed and that its audits are correct. Sadly, there have been many times when the validity of these projects has come into question. 

The Terra Approach

Terra's developers integrated a variety of value control mechanisms in the form of autonomous smart contracts. The supply of LUNA, the backing token for Terra stablecoins, is controlled by the value of staked LUNA coins. Whenever Terra falls below the target value, the system is set up to reduce the total supply of the token. Reducing the supply of LUNA drives up scarcity, which, in turn, pushes the price of Terra higher. 

Originally, this process was accomplished by sending LUNA tokens to a community pool. However, a recent community vote changed the process. Now, Terra sends tokens to a burn address instead. The main difference with this approach is that it removes these tokens from circulation forever.  Reversely, the system can automatically add LUNA tokens to the monetary supply to even out a price jump. In this case, increasing the amount of Terra in the market reduces scarcity, which makes the price drop. 

It’s All About Timing

The key to this process is to know exactly how much LUNA to add and when. For this task, oracles are a crucial component as they keep track of the prices of various fiat currencies in relation to LUNA. Oracles are ideal for this task because they have the ability to monitor off-chain data and communicate information to and from blockchains in a secure manner. 

The Terra Oracle is responsible for tracking and measuring the exact amount of LUNA to add or remove from circulation. It monitors the price of the pegged assets and Terra stablecoins to ensure that they retain their price match. If the price fluctuates, the system will then initiate smart contracts to remedy the volatility.

Launch Your Own Stablecoins

Terra provides developers with a highly programmable and interoperable ecosystem to create advanced stablecoins and host Dapps. The developers seek to compete with Ethereum in the Dapp and DeFi markets. To that extent, it surpasses Ethereum in terms of scalability, cost efficiency, and functionality.

Censorship Resistant

The network leverages a fully decentralized blockchain infrastructure to prevent manipulation and improve censorship resistance. There is no centralized party to block, alter, or confiscate your LUNA payments. All transactions are completed in a peer-to-peer manner. Additionally, you can verify all transactions utilizing the network's blockchain explorer. 

Scalability

In terms of scalability, Terra provides superior performance compared to earlier networks. Terra processes a block of transactions every 6-8 seconds. According to company bench tests, the network can scale to 10,000 transactions per second. As such, Terra assets provide instant settlements, low fees, and frictionless cross-border value transfers.

Passive Income

One of the most vital steps to becoming financially free is securing passive income streams. Passive income is income you continually earn for actions you completed in the past. Staking is one of the most popular ways for crypto users to gain access to passive income streams. 

Terra users can secure around 10.67% per annum by staking LUNA tokens. When you stake on Terra, you need to lock your crypto into a smart contract for a predetermined time. You are unable to use this crypto while it’s locked in the smart contract. 

In return for providing liquidity to the network, you receive rewards in the form of LUNA tokens. These rewards get generated from a combination of the different network fees. Specifically, a small percentage transaction fee ranging from 0.1% to 1%  is applied to every transaction. Additionally, there are gas fees for the execution of smart contracts on the blockchain. 

A Scalable Consensus Mechanism

Terra leverages a Delegated Proof-of-Stake consensus mechanism to secure the network and remain valid. DPoS networks improve on the efficiency and scalability of Proof-of-Work networks like Ethereum in multiple ways. 

For one, they do away with the need for power-hungry mining equipment. Instead, regular users can participate using their PC or smart device directly. This approach reduced Terra's carbon footprint compared to earlier blockchains.

In a DPoS system, users can vote on what nodes become validators within the network. A validator is tasked with executing smart contracts and verifying the network’s state. They earn rewards that are then split with those who delegated tokens to get them elected. The advantage of this system is that it enables all network participants to secure rewards without having to spend thousands on expensive mining gear.

Developer Support

Terra seeks to empower developers to create next-level Dapps to drive crypto adoption forward. As part of this strategy, the system was built to be very developer-friendly. For example, you can build smart contracts using a variety of different popular languages, including Rust, Go, and AssemblyScript.

You can also leverage multiple blockchains when developing on Terra. The protocol integrates the Cosmos IBC to ensure that interoperability remains secure and responsive. Currently, Terra operates on Ethereum and Solana. According to Terra documents, the team intends to expand the network to include more networks in the coming months. 

It’s All About the Users

Another major draw for Terra is the fact that it’s one of the only stablecoin projects that has community governance options. Community governance systems enable users to put forth proposals and vote on changes to the network. 

They are a great way to keep communities cohesive and to ensure that developers don’t hijack the protocol at a later date. Notably, the Terra community governance system has already played a major role in the network’s development with the introduction of the burning mechanisms.

Those with Terra Dapp concepts and platforms can seek help from the community in the form of grants. Dapps must fill out an application and await approval. Luna validators vote to accept or reject new Dapp applications. If approved, the system will automatically issue funds from the treasury.

Terra Stablecoins

Terra stablecoins leverage all the technological aspects of the platform. Users can create and issue these assets to track nearly any fiat currency in the world. These tokens can be used to facilitate easy payments, operate Dapps, take advantage of DeFi (decentralized finance) systems, and store value.

Luna

LUNA is the native utility token and governance coin for the network. LUNA plays a vital role in ensuring that all Terra stablecoins remain pegged. You can also stake LUNA to secure low-risk passive rewards. When staking LUNA, it also helps to bolster the price of Terra stable coins because it removes LUNA from circulation until the staking period expires.

Valuable Network Integrations

Another major benefit that Terra users enjoy is the wide selection of available integrations. These systems help to improve the user experience and drive ROIs. Here are the top Terra integrations to be aware of:

Anchor Protocol

The Anchor Protocol operates as a high-yield generator. Users can stake their Terra stablecoins and earn rewards weekly. The best part of this system is that it doesn't require you to give up ownership of your assets to secure rewards like trading. As such, Anchor is a great option for new users seeking consistent returns.

Mirror Protocol

The Mirror Protocol is another popular integration available to users. This system is used for the creation of fungible assets called synthetics. Synthetic assets are collateralized assets that live on the Terra blockchain but are priced according to the assets they represent. 

Chai

Chai is a popular payment system in South Korea. Already, there are thousands of users who make payments daily using this protocol. As such, it plays a vital role in onboarding new users and improving the usability of cryptocurrencies in general.  

Terra (LUNA)

Terra is the brainchild of the South Korean-based tech firm, TerraForm Labs. The network combines an open financial infrastructure with an advanced development ecosystem. Together, these technologies enable competitive programmable payments, logistics, and a streamlined financial experience. In the end, Terra developers seek to replace the myriad of credit card networks, banks, and payment gateways with this single blockchain alternative.