What is Terra Luna?
Today we will find an answer to the question “What is Terra Luna?” Luna is the native coin of Terra. The Korean company Terraform Labs created the LUNA blockchain. Through the private sale of LUNA coins, they raised $32 million to support this development. Investments were made from centralized sources like OKEx, Huobi, and Binance.
They launched the LUNA in 2019, and it was among the top decentralized financial coins for a while. Previously, CoinMarketCap ranked it the seventh-largest by market capitalization. However, on June 1, 2022, it occupied the 214th spot due to the recent crash.
LUNA serves four primary purposes in the Terra protocol:
- A way to pay transaction costs for its gas system (utility token).
- A method of participating in the platform’s governance structure. You can draft and vote on proposals that alter the Terra protocol by staking your LUNA tokens.
- A system to absorb changes in demand for stablecoins produced on Terra to keep price pegs.
- A token may be used to participate in the DPoS consensus system that allows validators to process network transactions.
One billion tokens are the maximum target supply for LUNA. Terra will burn LUNA until its supply equals its demand if the network hits one billion.
How does Terra LUNA work?
The main objective of Terra blockchain was to create stablecoins. Stablecoins, are tokens intended to combine the decentralized freedom of cryptocurrencies with the stability of fiat money. LUNA was a crucial component of this system as a staking or protocol token.
Let’s say you want to mint 100 UST at the peg, or $100 in TerraUSD (UST). You must exchange an equivalent amount of money in LUNA tokens to mint the UST. Terra will burn the LUNA tokens you provide after that. Before the release of the Columbus-5 upgrade, Terra only burnt a fraction of the supplied tokens; now, 100% are burned. Thus, the algorithm would require you to burn 2 LUNA to produce 100 UST if LUNA were priced at $50 per coin.
Terra is one of the top three staking blockchains with over $30 billion in staked Luna tokens. Currently, the protocol is used to stake 41.54% of all Luna tokens. More than 15% of the total quantity of Luna tokens are held by Orion Money, the largest staking pool holding Luna.
The Rise and Collapse of Luna
Terra launched the Columbus-5 Mainnet upgrade on September 30, 2021, and on October 4, 2021, the LUNA coin price reached its first all-time high of $49.45. The Terra blockchain now includes a lot of additional features. For instance, it has facilitated and sped up the transfer of assets like UST to other blockchains. Terra can do this due to its integration with the Cosmos blockchain network.
Updates to the blockchain caused LUNA’s price to rise because the token’s value depended on Terra’s expansion. The coin’s debut price was $1.31 in July 2019. It was still below $10 a year later. However, LUNA’s value significantly increased toward the end of 2021, and on December 27, it reached its highest value of $103.33. LUNA defied the early 2022 market downturn by reaching a new all-time high of $119.18 on April 5. However, there was a sharp decline in price after that, and on May 6, 2022, the token’s price was $82.94.
The flaws in Terra’s ecosystem were exposed in May 2022. It resulted in a sharp fall in the price of LUNA. The broader cryptocurrency market was pessimistic then, with bitcoin falling to its lowest level in 10 months on May 10, 2022. The value of LUNA fell below $40 on the same day. The coin fell to its historic low on May 13 of $0.00001675. Terra’s stablecoin, which LUNA supports algorithmically, then lost its $1 peg. CoinMarketCap reports that on May 11, the price dropped to $0.29.
Conclusion
In the future, Terra users will have several chances to gain profit from its cross-chain connectivity with other Cosmos SDK blockchains. In addition, Terra has space to expand and enhance its user base outside of Asia because the stablecoin subject is significant internationally in terms of legislation and mainstream usage in payment systems.
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