What is Terra (LUNA) and How it Works

Nafa Lightyani

What is Terra (LUNA) and How it Works

Rancakmedia.com – Do you know what Terra (LUNA) is? What is the history and also how does it work? In the article below we will explain it. Terra is a digital payments initiative that uses blockchain technology.

Definition of Terra (LUNA)

Stablecoins, also known as crypto assets, will be used by Terra to create a decentralized digital payments environment.

Stablecoins are crypto assets created to have a value comparable to fiat currency. The most popular stablecoin asset Terra creates is TerraUSD (UST).

Additionally, Terra is a blockchain that includes smart contract capabilities and can facilitate the building of an ecosystem of DApps on it.

LUNA is the standard crypto asset on the Terra network. According to Coinmarketcap, Terra has a market cap of $27 billion dollars at a price of $75 dollars for 1 LUNA.

These results place Terra as the 9th largest crypto asset in the world. As a crypto asset used to support stablecoins, LUNA does not have a maximum supply because its supply always adjusts to the number of stablecoins in circulation.

History of Terra

In 2018, Do Kwon and Daniel Shin formed Terraform Labs in South Korea which then began developing Terra.

Kwon was previously a staff member at Microsoft while Shin was the founder and CEO of payment technology startup Chai and founder of Korean e-commerce business TMON.

The goal of the Terra project is to create infrastructure to support the widespread adoption of digital payments via blockchain technology.

Terra was created as a payment option amidst ecology finance fragile that surrounds the bitcoin sector.

The Terra stablecoin gives users access to assets backed by fiat currency but decentralized and protected by the immutability of the blockchain network. Currently, Do Kwon is the CEO of Terraform Labs, responsible for the management and development of the Terra project.

How Terra Works

As a digital currency, Terra stablecoins can be used like fiat money, but with the added benefits of blockchain: an immutable ledger, faster transactions, faster settlement times, and cheaper fees.

Unlike USDT and USDC, Terra stablecoin is not backed by dollars, Korean won, or any fiat money. Instead, Terra released algorithmic stablecoins like asset-backed UST crypto Terra, LUNA token.

Terra maintains the price of UST at par with the dollar through the LUNA asset which can be exchanged for UST by Terra users.

As UST usage increases and LUNA supply falls, this mechanism of burning and exchanging LUNA benefits both LUNA and UST sources (making LUNA increasingly scarce).

Terra's algorithm causes the supply of LUNA tokens to contract and increase based on demand for UST and other Terra stablecoins.

Apart from the interaction of LUNA and UST, Terra itself is a blockchain platform that uses the proof-of-stake method. As a result, you can invest in the Terra network.

Additionally, Terra also offers smart contract capabilities and can be the basis for creating your own DeFi ecosystem. This fact adds to Terra's value as a project that has multiple uses and uses.

What is LUNA

There are four different functions for the Terra cryptocurrency, LUNA, in the Terra protocol:

  1. A method for paying transaction fees in its gas system (utility token).
  2. A way to participate in the platform's governance system. By staking LUNA tokens, you can create and vote on proposals with changes related to the Terra protocol.
  3. A mechanism to absorb fluctuations in demand for stablecoins minted on Terra to maintain a price benchmark.
  4. Tokens for staking in the DPoS consensus mechanism behind the validators that process network transactions.

LUNA has a maximum target supply of one billion tokens. If the network exceeds one billion LUNA, Terra will burn LUNA until the supply returns to its equilibrium level.

Conclusion

Stablecoins are crypto assets created to have a value comparable to fiat currency. The most popular stablecoin asset Terra creates is TerraUSD (UST).

In the article above we have discussed Terra (LUNA), its history and how it works which you can understand easily. In another article, we also prepared Terra (LUNA) price which you can see.

That's the article about what Terra (LUNA) is and how it works. I hope the article above can be useful and helpful for all of you.

Also Read

Share:

Nafa Lightyani

I am a content writer for SEO, Technology, Finance, Travel, Cooking Recipes and others. I hope this can be useful for all my friends.