Due to the volatility of cryptocurrencies like Bitcoin, Ether, and Dogecoin in recent months, many people are looking to invest in’stablecoins’ like Terra because of its more stable prices.
The organization in charge of the Terra coin project, Terraform Labs, has benefited from its rising notoriety. To help Terra incubate several cryptocurrencies firms, investors like Arrington Capital, Lightspeed Venture Partners, and Pantera Capital have contributed $150 million.
Applications created by Terraform Labs and its partners employ the blockchain technology of the company to keep a shared, permanent record of all of the company’s financial transactions including cryptocurrencies.
What is Terra?
According to statistics provider DeFi Llama, Terra has surpassed Ethereum as the second-largest DeFi protocol, with about $18 billion in total value secured.
The Terra ecosystem for decentralized finance (DeFi) creates algorithmic stablecoins. Terraform Labs and its co-founders Do Kwon and Daniel Shin created it in 2018. In DeFi lending and borrowing applications, stablecoins, or cryptocurrencies linked to reserve assets like the US dollar, are frequently used.
According to its website, Terra is a next-generation blockchain payment network integrated with stablecoins and powered by its own LUNA token. With the help of algorithmic stablecoins, whose value is maintained by internal algorithms, Terra serves as a payments-focused fintech ecosystem using a layer-1 blockchain protocol with smart-contract capabilities.
The white paper for the Terra blockchain was published in April 2019, the same month that its mainnet went live. According to the document, Terra is a growth-driven stablecoin that ensures price stability through an elastic money supply and steady mining incentives.
The protocol also makes use of seigniorage, or the profit made from issuing money, to promote transactions and facilitate widespread adoption.
Stablecoins backed by the dollar, euro, yen, pound, won, and SDRs of the International Monetary Fund—a global reserve asset that augments the foreign exchange reserves of the multilateral lender’s member nations—have been made available under the protocol.
Terraform Labs was founded in South Korea in 2018 by Daniel Shin and Do Kwon, who serve as the organization’s CEO. Shin, a Terra partner and former Microsoft employee, is the manager of the Chai online payments company at the moment. According to Kwon, many Koreans have used the Chai service to buy goods like theater tickets with Terra money.
According to Kwon, Terraform Labs does not profit from cryptocurrency trades and instead depends on outside investment to stay afloat. It has collected $57 million from investors including HashKey Digital Asset Group, Divergence Digital Currency Fund, and Huobi Capital, according to deal-tracking service PitchBook. In addition to the $150 million previously pledged, money was raised.
The Significance of Luna Rising
The price of Luna has risen as a result of a number of factors. The negative funding rate at significant exchanges, according to Delphi Digital, a leading cryptocurrency research company, was a symptom of the presence of delta neutral traders, a class of investors who hold multiple holdings to balance delta risk.
“Investors buying spot LUNA to lock up in the Astroport lockdrop, then hedging their position via perpetual futures to remain delta neutral, likely sparked the price surge over the last several days,” Delphi Digital wrote in a research note.
The development of Terra’s burn process may potentially have a significant role in the price increase. Proposal 44, released in October, intended to burn 90 million tokens kept in the community pool, much like Ethereum’s EIP-1559 upgrade, which added the deflationary ETH burn mechanism.
The Potential Dangers
Financial experts suggest just investing as much as you can afford to lose in any cryptocurrencies due to the risks. You should consider and comprehend the likelihood of significant price changes before investing.
According to Hougan, “the biggest risk” in relation to Luna is that investors would lose money if Terra’s stablecoins are unable to maintain their pegs. He asserts that because Luna acts as a sort of volatility absorber for Terra’s stablecoins, Luna’s performance may be comparable to Terra’s stablecoins.
It is difficult to predict how any asset will do in the future or whether it will be able to withstand extreme volatility or a bear market, even though Terra’s stablecoins, including the dollar-pegged UST, are now performing well.
Terra’s Mechanism of Operation
Consider buying a movie ticket, which is among the most frequent purchases made through CHAI (one of Terra’s most well-liked dApps). Burning the necessary quantity of LUNA tokens, you must first build your own Terra stablecoin on the website. Once you have your stablecoins, you may use the CHAI mobile app to pay for your tickets either online or in person.
When you purchase a ticket using your stablecoins, Terra’s blockchain generates a small transaction fee that is split among LUNA delegates, token owners who decide to assign their LUNA currency to a staking pool in order to protect the network.
Terra’s Future Plans
The goal of Terraform Labs is to create a decentralized digital financial system that is unreliant on large banks and fintech firms by utilizing the Terra blockchain and related cryptocurrencies, including one linked to the Korean won.
The Chai payment app, which is based on Terra’s blockchain, has thus far been the country’s main driver of growth as customers have used it to purchase goods from merchants like coffee. Kwon claims that the company’s associated Mirror trading app is expanding in China and Thailand.
The Anchor app, a high-yield savings account for owners of Terraform Labs’ digital coinage, is one of the many initiatives that Terraform Labs is working on in addition to cryptocurrencies. Users can create synthetic financial assets that resemble more conventional ones, including “tokenized” corporate stock representations, using the company’s Mirror program in the meantime.
According to Kwon, these synthetic assets are made to enable anyone, such as “a tiny retail trader in Thailand,” to purchase shares and “have some exposure to the upside” of stocks that they otherwise wouldn’t have been able to do.
Although synthetic stocks are now unregulated, some detractors think that ultimately the Securities and Exchange Commission in the US will regulate them.
The Future of the Terra Crypto Ecosysterm
Terra wants to become the leading e-commerce stablecoin payment and DeFi service provider in the world. While the blockchain’s principal uses have huge potential for global acceptance, Terra’s special value proposition is expediting blockchain adoption in the Korean and Asian industries.
Terra’s discount mechanism, quick settlement, and reasonably low fees for goods transactions entice businesses and consumers to adopt it.
The Terastation wallet, Terra Bridge, the uncomplicated approach to application and blockchain development, and the cross-chain value transfer capabilities offered by Cosmos’ interoperable IBC solution are just a few examples of the blockchain ecosystem’s rising number of participants.