What is Terra (Luna) and How Does it Work?

The main goal behind the creation of Bitcoin was to replace the present fiat currencies worldwide. But a major problem with the use of Bitcoin globally is its instability in price. The other key cryptocurrencies also have the same issue. Hence, one stabilizing mechanism was needed to enable mass cryptocurrency adoption. That would enable the adoption of cryptocurrencies on a broader level by buyers and merchants. Terra has come up with this mission to enable broader adoption and use of cryptocurrencies.

What Exactly is Terra?

Terra is essentially an algorithmically-backed blockchain protocol that provides a suite of stablecoins. Moreover, it offers a range of dApps or decentralized finance apps. Terra has a range of fiat-based tokens, the Terra stablecoins, and a native token, LUNA, the 7th largest cryptocurrency as of March 2022. It keeps a tab on its prices through Terra miners who mint or burn LUNA and Terra stablecoins. Terra USD (UST) is the main stablecoin of Terra that aims to lower the volatility related to cryptocurrencies like Ethereum and Bitcoin.

The protocol maintains the price of Terra stablecoins by stabilizing the demand and supply. Terra pool and LUNA pool execute swaps instantly to maintain price stability.

Besides, Terra combines all the best features associated with Fiat and Bitcoin currencies. It lets users trade swiftly and easily through Terra stablecoins, making it simpler for buyers and merchants to adopt and use cryptocurrencies. To run such a currency network, Terra needs a broader audience base for the network. And that’s when a group of fifteen big Asian e-commerce firms called Terra Alliance was created to attain this goal.

This alliance processes $25bn collectively per annum and 45mn active users, facilitating Terra to offer an easy payments network sans traditional payment value chain. Furthermore, Terra has a significantly low transaction fee and continues to create a more robust infrastructure using DeFi assets and tools that the users love. Hence, before investing in Terra, make sure that you know the Bitcoin to INR rates.

The Token Economics of Terra

The Terra ecosystem comprises two kinds of tokens: LUNA and a collection of Terra stablecoins. All the Terra stablecoins are collateralized by LUNA token. LUNA is used for mining rewards, governance, transaction fees and volatility absorption. The Terra protocol operates on a DPoS (Delegated Proof of Stake) mechanism, where the miners stake the native token LUNA for mining the Terra stablecoins. The protocol has its stablecoins pegged to major global fiat currencies such as the Euro, US dollar, Japanese Yen, Chinese Yuan, South Korean Won, and UK pound. Over time, Terra will incorporate more currencies into the network through user voting.

How Does the Terra Protocol Work?

Terra protocol runs as one distributed ledger maintained by the validators in the network. These validators work as per the DPoS system and cast votes on the blocks, thereby earning the LUNA token as a reward. The Terra miners have a major role in safety as they participate in the Point of Sale (PoS) consensus mechanism. Besides, they also help stabilize the prices by enduring volatility.

Resultantly, the network attains stability through mining rewards using an expanding and contracting money supply. Each time the prices deviate a bit, Terra tries to bring back the price to normal. Terra pool and LUNA pool constantly subtract or add from the Terra’s supply. The miners who want to mint Terra stablecoins have to burn LUNA. The same process works in reverse: you need to burn Terra stablecoins to mint Luna. The protocol provides stable rewards, both in expansion and contraction, thereby following the easy rule of demand and supply.

You can purchase LUNA on major cryptocurrency exchanges like CoinSwitch Kuber. However, before buying LUNA, ensure that you know the current LUNA to INR rates.

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