Price volatility in cryptocurrencies is well known by anyone involved in the markets and ecosystems that have been created by the invention of the blockchain and cryptocurrencies. Some projects are working on a resolution to this issue, and one of them is the Terra Protocol. It uses an elastic monetary policy to create price-stable cryptocurrencies that are pegged to a variety of fiat currencies.
What is Terra Luna?
Terra is a blockchain protocol that offers a stable payment system and open financial infrastructure. The whole project is supported by stablecoins maintained by a seigniorage mechanism, and tied to different fiat currencies. They all are stabilized by this project’s currency, the LUNA token.
Terra platform has many stablecoins pegged to different fiat currencies. It is a stablecoin the value of which is pegged to the International Monetary Fund’s SDR basket of currencies. When the demand for stablecoins rises and the transaction activity grows, the price of stablecoins goes above the peg. The protocol issues new stablecoin tokens to bring them closer to peg and lets them be sold for LUNA for a higher price. Conversely, in the event when the price of stablecoins goes below the peg, more LUNA is issued. The market-maker offers newly minted LUNA for Terra stablecoins, and the decline in value of a stablecoin is redistributed among LUNA holders.
A Brief History of Terra Crypto
In January 2018, Terraform Labs that manages the Terra project appeared. After that, its developers were engaged in preparations for the launch of the LUNA token. From January 30 to March 1, 2019, there was an ICO that raised $62 million.
In the middle of 2019, Terraform co-founder Daniel Shin launched Chai Pay, a service built on the Terra platform. The Terra (LUNA) token became available on cryptocurrency exchanges in July 2019.
How Does LUNA Cryptocurrency Work?
LUNA is a staking-oriented coin. Its main aim is to avoid the exchange rate volatility in the payment system. It operates as a counterparty for everyone that converts Terra to LUNA. Volatility is automatically flipped from the Terra price to LUNA.
This coin provides stability to the cost of stablecoins, modulates validator incentives, and operates as a voting force to control the network. These functions are performed by locking in value in the ecosystem, and this is accomplished by deploying LUNA. This cryptocurrency serves as an internal asset of the whole ecosystem.
Large and specialized LUNA holders can bid on their coins for getting validators of this network, and smaller Terra crypto holders can delegate their share to validators. So, LUNA crypto participants are exposed to the risk of maintaining a long-term position on an unstable coin.
Stacking remunerations create incentives to maintain lasting interest in keeping and placing LUNA to protect the network.
First, stacking remunerations are offered to validators, who receive a fee for maintaining their validator and securing their transactions. Then delegates receive stacking rewards which they can withdraw individually.
The payment a delegate receives from stacking is proportional to the size of their share and is structured so that the remuneration increases as the volume of the transaction gets higher.
So, Terra LUNA crypto is an asset for long-term investments. Its holders believe in the growth and success of this project for many years.
LUNA Token States
Unbonded- Tokens can be easily transacted like any other currencies with no limitations.
Bonded- Coins are staked and generate rewards for their holders during the blocking process. Once it’s locked, it’s impossible to trade with LUNA, it’s kept in the ecosystem unchanged.
Unbonding- the stage of stacking of LUNA tokens. This stage continues for 3 weeks. During this period, you will not receive stacking rewards or trade Terra LUNA tokens. After the unlock period, coins get to the initial state again.
Where To Store LUNA?
The safest way to store the LUNA coin is the user-friendly Lunie.io wallet created by the Terra LUNA developers. It offers instant payments, stacking, and network management. This program is fully decentralized. So, private keys are stored only by its user. Lunie.io is available for Android and iOS phones and tablets and as a web version.
A Glimpse to the Future of Terra
One of the most significant partnerships of Terra is with Chai, a mobile payment app. The 10 million-user mobile payment provider uses Terra blockchain for processing payments.
Terra will bring interoperability with the Cosmos network but also burn seigniorage fees and redirect swap fees to oracle validators instead. For the more distant future, the community is considering increasing interoperability with Ethereum, Solana and, of course, more stablecoins. Terra experiences high volatility just like any other cryptocurrency which is why it’s useful to be able to predict the price of LUNA and trade accordingly.