Terra is a blockchain with a considerable focus on providing stablecoins for digital activities with the slogan, Programmable Money for the Internet. There are various stablecoins in this blockchain with a decentralized governance system run by LUNA tokens.
LUNA is the primary token in the Terra network that can be staked, too. The protocol uses it to stabilize the price of stablecoins. Using this token results in a change in its value. LUNA price broke lots of records in 2021 with about %2,000 growth.
What is Terra?
Launched by Terraform Labs, Terra is a blockchain with stablecoins that are designed ti used broadly on the internet. Daniel Shin and Kwon founded Terraform Labs in 2018 in South Korea with a focus on creating practical blockchains for mainstream users. They focused on stablecoins and wanted to provide a better solution that doesn’t have the problems of famous stablecoins, USDT, for example.
Traditional stablecoins like USDT are facing various problems. Providing reserve for all the minted stablecoins is becoming a problem. These stablecoins are pegged to actual fiat money, and supporting them when the market demand increases are very challenging.
Terra is here to solve these challenges with an innovative way of supporting stablecoins. Terra blockchain offers stablecoins with equal value to US Dollar, Euro, Canadian Dollar (CAT), and Japanese Yen (JPY). New stablecoins are added to the platform, soo.
The US Dollar-pegged stablecoin of Terra is called UST, which is the most famous one so far. Terra offers algorithmic solutions for backing these coins. The official documents on Terra call them “seigniorage share style stablecoins.”
This blockchain enables developers to build smart contracts and thus dApps that help digital payments. Many dApps have been developed so far, among which TerraPay is the most famous one. Developers can use various programming languages, including Rust, Go, and AseemblyScript. Besides, their dApps can run on multiple chains connected by Cosmos IBC.
How Does Terra work?
As mentioned above, Terra focuses on providing better payment solutions and also innovative stablecoins for these payment systems. Terra wants to replace the current complicated payment systems with a single blockchain layer. The project focuses on both infrastructures and tools to replace the system. The ultimate goal is to provide a credibly neutral, decentralized, and transparent payment system.
Terra’s blockchain infrastructure has been used in other projects, too. CHAI is one of the projects. It uses this infrastructure and serves more than 1.3 million users.
The stablecoins on the Terra blockchain are the biggest innovations for mainstream users for using digital money. Algorithmic stablecoins on this blockchain (with UST the most famous one) are managed and controlled by smart contract and the primary token, LUNA.
LUNA token is used to mint UST when the price goes above $1 to increase the supply. When the price goes below $1, surpass UST will be swapped for LUNA (according to daily exchange rate) to increase it again. LUNA stakers will receive rewards from these transactions, too.
Stablecoins on Terra
The Terra team plans to support all of the famous worldwide money in its platform as stablecoins. The most famous important stablecoin on this platform is TerraUSD or UST. But there are other stablecoins available, too. They are:
- The International Monetary Fund’s TerraSDR
As mentioned above, LUNA isn’t a stablecoin on the Terra ecosystem. It’s the utility token that has various use-cases in the network. One of them is keeping the prices stable.
Terra Station is the name of the primary wallet for Terra blockchain. It’s available for the public in numerous versions:
- Chrome browser extension
- macOS application
- Windows application
- Linux application
- iOS application
- Android application
The wallet supports stablecoins, and many Terra customers use it for transacting and even keeping the value of their holdings.
LUNA the Terra Token
The native token of Terra is named LUNA that is called a native staking token, too. It has a fundamental role in collateralizing the smart contracts on Terra blockchains.
Smart contracts that keep the value of stablecoins in the ecosystem stable. It also has a use-case as an incentive for validators and stakers in the Terra ecosystem.
Terra is based on a protocol named Tendermint BFT. In this protocol, validators play vital roles next to running full nodes. They listen to transactions in the network’s mempool. After that, signing new transactions in the blocks is done by validators, too.
LUNA holders delegate their tokens to validators. In simple terms, there is no direct staking in this platform, and it is better-called delegation. In this way, mainstream stakers don’t need to run full nodes and just should delegate their tokens. The more a validator receives LUNA tokens, the more it will have vote power.
Decentralized governance is the solution that Terra has deployed for having a fully decentralized ecosystem. In this system, users can propose their ideas for changes in the protocol or improvements. They can vote for/against proposals, too, and have direct on the platform they use in this way.
Every proposal needs some LUNA deposition for being reviewed and votes. Some proposals can be automatically applied after receiving enough votes. According to Terra documents, Currently, proposals that can be automatically applied include:
- ParameterChangeProposal: changing of blockchain parameters (defined in each module)
- TaxRateUpdateProposal: update Tax Rate monetary policy lever
- RewardWeightUpdateProposal: update Reward Weight monetary policy lever
- CommunityPoolSpendProposal: disbursement from the Distribution module’s Community Pool
“Other issues like large directional changes or decisions requiring human involvement (manual implementation) can be also be voted on, through submitting a plain TextProposal.”
About Terraform Labs
Terraform Labs is the company behind the Terra project. It focuses on providing international payment solutions with less burden. The Terra blockchain and its offerings show the serious plans of Terraform Labs in offering the solutions. It has been successful in finding big investors and has grown exponentially in 2021 thanks to its tokens and also investments. The company is headquartered in Seoul, South Korea.
Stablecoins are one of the biggest needs in the new economy that cryptocurrency is offering. People still need money that has a familiar value to them. Traditional stablecoins like USDT have been successful in attracting users but have numerous shortcomings. Algorithmic stablecoins are here to solve some of these problems. The infrastructure and tools that Terra offers may solve many of these challenges and also provide a practical decentralized payment system for people around the world.