An overview of Terra (LUNA)

The native LUNA token is used to ensure the price stability of stablecoins on the Terra platform. Holders of the LUNA token have voting rights and can submit proposals for voting. Terra was founded by Daniel Shin and Do Kwon in January 2018.

Technological advantages of Terra

  • Interoperability: Terra natively supports multiple blockchains and uses Cosmos Inter-Blockchain Communication (IBC) to connect them. Currently, Terra is live on Ethereum and Solana, with plans to integrate additional blockchains.

  • Programmability: Smart contracts on the Terra blockchain can be written in Rust, Go or AssemblyScript, making it easier for developers to get started without having to learn a new programming language.

  • A new financial network: Terra aims to improve inefficient payment structures by simplifying cumbersome payment processes involving credit card providers and banks into a single blockchain payment layer.

How Terra (LUNA) works

Terra uses an infrastructure that allows developers to create self-stabilising stablecoins. An 'elastic money supply mechanism' dynamically adjusts the amount of stablecoins in circulation to keep their value stable.

The LUNA token

LUNA is the native token of the Terra blockchain and is used to ensure the price stability of stablecoins. A stabilisation algorithm automatically relies on LUNA tokens. Additionally, LUNA tokens are used to stake and validate new blocks on the dPoS blockchain.

Stablecoins on Terra

The following stablecoins currently exist on the Terra blockchain:

  • TerraUSD (UST) - pegged to the US dollar

  • TerraKRW (KRT) - pegged to the South Korean won

  • TerraMNT (MNT) - pegged to the Mongolian Tugrik

  • TerraSDR (SDT) - pegged to the IMF SDR

GAS on Terra

Similar to Ethereum, GAS is required for transactions on Terra to execute smart contracts. GAS prevents spam attacks and provides an additional financial incentive for miners to include transactions in blocks.

Stakes and protocols

  • Terra (LUNA) Staking: LUNA tokens can be staked, with block rewards derived from GAS fees, transaction fees and seigniorage distributions.

  • Anchor Protocol: The Anchor protocol allows Terra stablecoin holders to earn interest, similar to a traditional savings account. It also acts as a lending protocol, allowing lenders to use liquid PoS currencies from major compatible blockchains as collateral for short-term loans.

  • Mirror protocol: On Terra, fungible tokens called 'synthetics' can be created and secured by locking at least 150% of the value of the new tokens in a Terra stablecoin as collateral.

Token distribution and funding

The distribution of LUNA tokens is somewhat opaque. There have been several private funding rounds in 2019, but no public token sale. Major Asian exchanges such as Binance, Huobi and OKEx, as well as venture capital firms such as 1kx and Polychain Capital, invested early in the Terra project. The number of LUNA tokens in circulation is dynamically controlled by an algorithm that burns tokens when the total exceeds 1 billion.

Chronology of the Terra and UST crash

Terra quickly rose to become one of the most promising projects in the crypto world, but suffered a dramatic crash in May 2022, shocking investors and market observers. Many questions and uncertainties still surround Terra's fall.

  • Founding and early success: Terra was founded in January 2018 by Do Kwon and Daniel Shin, and quickly attracted investors. The white paper was released in 2019, and Terra's ICO was a huge success.

  • Expansion and DeFi Growth: In 2020, Terra continued to grow, launching the Anchor protocol, which quickly became one of the most popular DeFi protocols. The UST stablecoin was also launched.

  • Peak and first setback: In early 2022, the price of LUNA rose to an all-time high of $119.2. The Luna Foundation Guard (LFG) was established to support the value of the UST by buying BTC.

  • The crash: In May 2022, UST lost its dollar peg and Terra suffered a massive loss in value. LFG sold BTC to restore the peg, but it was not enough. UST and LUNA experience a dramatic drop in value.

  • Consequences and a new beginning: The Terra blockchain was temporarily halted and eventually underwent a hard fork. Terra 2.0 was launched, while the old blockchain continued as "Terra Classic". Terra's future remains uncertain, and millions of retail investors suffered significant losses.