Luna and Terra Blockchain: Everything you need to know!

If you do not know the Terra blockchain, you may know its native tokens which are Luna Coin and the TerraUSD token (UST), a stablecoin as it is easy to guess.

Both Terra blockchain tokens have gained prominence through successful applications and protocols developed on this blockchain. We can cite for example the Mirror protocol and also the Anchor protocol. This greatly contributed to raising awareness of Terra Blockchain and its solutions.

Terra to develop an innovative payment solution as it is user-friendly and simple to use for businesses. Thus, they and businesses will be able to accept Terra payments for example, without having to set up complicated logistics.

So what is special about Terra Blockchain? What innovation does it bring and what are the challenges and the role of the LUNA and TerraUSD tokens?

This is what we are going to see here in this article.

History of the company behind Terra Blockchain

It is the South Korean company Terraform Labs managed by do kwon which was at the origin of the creation of the Terra blockchain, in 2018. Moreover, the company Terraform Labs was incubated within Terra Alliance, a grouping of 15 online commerce companies from Asia. 'East. This is said to let you know that this company has a strong interest in online commerce and payment, in particular. In addition, Daniel Shin, the co-founder of Terraform, has a strong entrepreneurial past; he set up an online payment application (Chai).

Initially, Terraform Labs launched the TerraKRW token (KRWT) in 2019, which is a stablecoin indexed to the Korean national currency, the Won.

Thus, Korean companies were the first targets of this blockchain, companies that were willing to accept crypto payments while avoiding price fluctuations.

Naturally, the company opened up to other markets and is now fully international.

Thus, more than 32 million dollars were spent to acquire LUNA tokens during the first fundraising.

The LUNA token was quickly listed on Binance and Huobi for example, the largest Asian exchange platforms, in particular.

What is special about the Terra blockchain?

You should know that Terra blockchain was created from the software of Cosmos and then uses Tendermint's Proof-of-stake consensus. Logically, with the rise of Terra's exposure, it is also indirectly Cosmos who benefited less. Cosmos allows you to create and launch solid, fast and interoperable blockchain applications: Terra Blockchain is a good example.

The big advantage of Terra is therefore that smart contracts require gas fees that are much lower than what we see on Ethereum. In fact, many applications are interested in developing on this architecture. This remains a good alternative for developers looking for an accessible and therefore less expensive blockchain.

Some criticize that Terra is too "centralized" compared to other blockchains as the maximum number of validators is capped at 100…

Otherwise, most users and developers show their enthusiasm for this blockchain. The rise in Terra’s native tokens is a perfect testimony to this, for example.

So let's take a closer look at what it's all about.

What you need to know from the outset is that the two tokens are closely linked and one does not work without the other.

Moreover, pay close attention to the names of the tokens: terra and Luna. The founding team wanted to announce and remind us that these two tokens act exactly like the Earth and the Moon. The two stars depend on each other and this complex and harmonious relationship then allows the stability and rotation of the two stars. It is the same for the Luna and Terra token.

It is also this aspect that makes the Terra blockchain can be “complex” to understand and it is also in this that it stands out from other blockchains in its operation.

The Terra LUNA token (LUNA)

It is the essential token of the Terra network as a whole. Also, the LUNA token is also a governance token with which holders can vote for certain decisions of the network. Luna tokens are regularly “burned” and this is what helps to stabilize the entire Terra ecosystem.

The TerraUSD (UST) token

If there are two tokens on Terra, it is not a coincidence and it has a real meaning and a coherent functioning when we understand it well.

The TerraUSD token (UST) is therefore a stablecoin which was created in September 2020. The creation of UST is guaranteed by the creation of the LUNA token.

When the price of UST exceeds dollars, then people who own LUNA tokens can then sell their LUNA for UST. When this happens, then new UST tokens can be created so that the market cap decreases. This is done until the UST regains its price of 1 dollar.

This mechanic means that the more UST there are, the more the price for LUNA tokens will increase. Indeed, if the price of UST is below the target of $1, then we can sell it for LUNA and thereby make a profit. In fact, when this happens, a certain amount of LUNA undergoes a "burn". We will "burn" it to reduce the supply and therefore make it more expensive.

What you need to understand here is that the LUNA token and UST work in parallel. Even if this may seem complicated at first glance, we must understand the idea that there are possible trade-offs between the two. Traders can find a way to generate profits by arbitrage with both tokens.

Discover the protocols developed on the Terra blockchain

If we are talking more and more about Terra blockchain, it is mainly because of the protocols that have been built on it and which have proven to be very interesting and very attractive. Let's see the most emblematic of these protocols.

Mirror Protocol

This is clearly the best known of Terra's protocols. The protocol allows the creation of fungible "synthetic" assets that follow the prices of real-life financial assets. Synthetic stocks can then be traded without actually holding the stocks themselves. This is why we talk about "mirrors". This is the first protocol that allowed shares of large groups and recognized startups to be placed on the blockchain. In fact, the user will "mint" the assets called "mAssets". To do this, users must then block 150% of the value of the mAsset with TerraUSD as collateral.

If the value of the asset exceeds the guarantee threshold, then it is liquidated.

Mirror Protocol was created in conjunction with both Terra blockchain and CosmWasm, while using TerraUSD as the base asset.

Users can also trade the assets via decentralized exchange Terraswap. The protocol uses the MIR token native. It is also a governance token.

We will come back to this protocol in a dedicated article, don't worry. Indeed, it is a really interesting protocol that we must explain better.

Let's see the other protocol deployed on Terra Blockchain which is also getting a lot of attention.

Anchor Protocol

Le Anchor protocol is relatively new as it was only launched in March 2021. Anchor Protocol offers a wide range of accessible products with attractive rewards. The particularity of Anchor protocol is the possibility of withdrawing your winnings and your capital instantly without having a lock-in period required.

The returns offered by Anchor are generated mainly by proof-of-staking services. More specifically, Anchor lends amounts to borrowers who deposit staking assets carried out on the main blockchains as collateral. Thus, payment users generate stable passive income on Anchor.

Important note: Anchor offers returns of 20%, which may seem "suspicious". This is a return that seems a little too "good" to us. Be careful.

So much for the two best-known Terra Blockchain protocols.

Final word on the Terra blockchain and its ecosystem

That’s a quick summary of Terra Blockchain. It is true that this may still seem complicated to understand, but we can at least salute their originality. It is indeed an innovative and effective model to place two tokens in place to ensure the stability of the network.

Terra blockchain has great ambitions and regularly creates partnerships with big names in the cryptosphere; Thus, Terra announced that it wanted to create gateways with Ethereum and SolanaEg.

We had heard about a new project in the name of Alice Finance...but for the moment we have not found any information even if some rumors say that it would be a sort of hybrid protocol between Mirror and Anchor...In short, even more innovative .

We closely follow the news of Terra Blockchain and we believe that it can contribute to bringing major innovations and major protocols in DeFi….To be continued.

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