A cryptocurrency creates a world of connected stablecoins: Terra (LUNA). Unlike normal cryptos, they keep their prices constant, making them much easier to spend. As a result, they could further spread crypto adoption around the world. Because of this, you will see several stablecoins among the available cryptocurrencies.
Stablecoins have been around for a long time, but they are about to undergo a major upgrade. The old methods of keeping the coins stable are no longer enough. This is one of the improvements that the Terra (LUNA) network has brought to the cryptocurrency space, and its features can convince more people around the world to use cryptos.
We need to start talking more about stablecoins before we talk about Terra (LUNA). We understand that not everyone knows about cryptocurrencies, let alone stablecoins, and this will make it easier for readers to understand how this stablecoin works. Then we’ll go over the other features and issues to see if you should invest.
Why are stablecoins a big deal?
The first cryptocurrency is Bitcoin (BTC), which is meant to be a decentralized digital currency, and that means there is no need for a government or company to oversee the system.
Instead, it relies on computers owned by ordinary people who volunteer to run the entire network called a blockchain. In return, they receive cryptocurrency.
Unfortunately, cryptos are known for their high volatility. Believe it or not, prices can cut in half or triple in minutes! Imagine if this were the value of your money!
It is for this reason that stablecoins have drawn attention in the crypto space. They are cryptocurrencies that are pegged or tied to another asset with a more stable value. Here are the types of stablecoins:
- Fiat-supported – These are also called fiat-linked stablecoins and are linked to the value of other fiat currencies such as the US dollar. A famous example is Tether (USDt).
- Raw material-supported – Some people invest in precious metals like gold and silver to hedge against inflation. These stablecoins work similarly as they are tied to these materials. Still, they’re a lot easier to spend.
- Crypto-supported – Some stablecoins are tied to other cryptocurrencies, particularly Bitcoin and Ethereum (ETH) as they are currently the largest.
- Algo-based – Think of these as “mathematically backed” stablecoins that adapt to market demand using smart contracts and mathematical formulas.
They usually get the value by holding a larger supply of tied reserves. However, if you watch their charts, it isn’t foolproof. Stablecoins like Tether also have enormous price spikes!
Many things can cause this, such as an unstable reserve. As I said, stablecoins could tie their value to Bitcoin. Its value can also move up and down, which is what the stablecoin entails.
This is one of the reasons why stablecoin prices don’t always stay the same. Lots of people have been looking for a way to fix this, and one crypto might succeed: Terra.
Read more: How stablecoins calm the crypto market
What is Terra (LUNA)?
The Terra Stablecoin offers a solution here. Do Kwon and Daniel Shim from Terraform Labs created it in 2018.
It works like a mix between the fiat-backed and algo-based stablecoins. It’s tied to Fiat, but the math keeps the price going.
Unlike most cryptos, the Terra network has Terra and LUNA tokens, and they are the ones that make its unique model possible. How they work:
- Terra – It’s the network’s fiat-backed stablecoin. For example, the TerraUSD (UST) is pegged to the US dollar. You could create or “mint” them with the help of LUNA tokens.
- LUNA – When crypto investors mention LUNA or Terra, they are talking about it. It is the token that holds the Fiat-powered Terra at a constant price.
You need to convert LUNA tokens to get Terra in exchange. The value of UST goes up or down, so the price can be higher or lower than the US dollar.
Arbitrageurs keep the price constant by taking advantage of this difference. You buy and sell LUNA, which adds or subtracts the VAT offer. The UST value remains the same.
With other stablecoins, you need to hold a large supply of the tied asset. If you want to expand use, you have to increase the reserves.
This means that expanding these projects costs a lot of money and limits the growth of the stablecoin. You will notice this problem in others like ManufacturerDAO.
The LUNA token eliminates the need to have too many reserves. This makes it easier to expand the Terra model and you don’t have to spend as much.
On the other hand, the LUNA token plays different roles in the network. Aside from keeping the Terra price tag, here are the other features:
- You have to pay transaction fees with it.
- You can use LUNA tokens to generate passive income.
- When you stake them out, you can submit and vote on changes to the Terra network.
What makes Terra (LUNA) great?
It’s hard to find a real use for other cryptos. This is where the Terra network stands out and enables popular payment systems in South Korea and Mongolia.
Terra is present in the South Korean Chai app and the Mongolian MemePay app. In the latter country, taxi drivers also pay their drivers TerraMNT bound to the Mongolian Tugrik.
Payment methods like this are part of Decentralized Finance, or DeFi. It’s the way cryptos are changing the way we use money. Another example is Crypto lending.
However, that’s not the only thing it can do. Here are some of the other things the Terra (LUNA) system can do:
- Works with other cryptos – It enables users to send and receive assets from one network to another. For now, you could use it with Ethereum and Solana (SOL).
- Mirror protocol – Terra makes assets called “synthetic“That follow the price of other assets. You can also trade and use them on the Terra network. The recent one Columbus 5 upgrade have improved this feature and catapulted the LUNA price to an all-time high!
- Low cost, high speed – The transactions only take six seconds and cost only a few cents.
- Great for staking out – You can earn up to 20% more LUNA from staking out. It’s hard to find such profits from other cryptos or even from a bank!
What are the problems with Terra (LUNA)?
The supply of $ UST is at an all-time high. $ LUNA hits new all-time highs.
Columbus-5 is ~ 22 days away.
A flurry of projects enveloping $ UST and offering various sources of demand are poised to launch for Col-5.
– Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) August 17, 2021
You cannot find an investment with no drawbacks. However, you should look for those with risks that you are willing to accept. Here are the problems you may face with Terra:
- adoption – Terra is having a hard time growing outside of Asia because it would have to beat other cryptos like Ethereum. These had been around for a long time, so they could take over large parts of the market. Terra needs to step up his game!
- It’s a bit centralized – Terra selects the nodes that keep the network running. It makes transactions cheaper and faster, but it goes against the whole point of crypto.
- No roadmap updates – We only heard of an upgrade this year. At the time of writing, we can’t see what’s next for Terra. This is not a good sign if you want to hold LUNA tokens for a long time.
- Lose your bets – You leave LUNA tokens with a validator who has to follow the rules of Terra. Otherwise, you could lose all of those coins! Therefore, you should be careful when setting out. You will see this problem with other coins, however.
It is up to you whether or not to invest in Terra (LUNA). This article is intended to inform readers, not to provide financial advice. Before investing in any asset, make a plan.
If not for you, cryptocurrency exchanges have hundreds of other options. Take the time to find the assets that match your goals. Don’t use the money you don’t want to let go of!
Check out other articles from Inquirer USA for more crypto updates. These give overviews of other crypto-coins and explain further trends.
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