Terra is one such project developing a unique approach to stablecoins and the tools developers can use to create their own pegged tokens. When UST depegged from the US dollar (USD) on 9 May, UST redemptions massively inflated LUNA supply, driving the price down by 99%. The UST crash happened as the algorithms could not keep up, forcing the Luna Foundation Guard and its governance team to sell their bitcoin reserves to save the stablecoin. As the broader crypto market grappled with challenges, LUNA’s price began its downward journey.

Terra (LUNA) Tokenomics

This platform allows developers to construct unique blockchains and decentralized apps on top of Terra for various use cases. There are already over 100 of these domestically produced projects in the Terra environment. Non-fungible token (NFT) collections, decentralized finance (DeFi) systems getting to grips with aat cost behaviour and Web 3 apps are examples. On May 28, 2022, the genesis block of the new chain was launched to conduct future transactions under the name Terra (LUNA), and the original Terra Chain was rebranded as Terra Classic. The original native token — LUNA has also been renamed as LUNA Classic (LUNC).

Terra Luna Price Prediction: The Project Built On Shaky Ground?

In addition to using the assets for some service or utility, there’s a potential arbitrage opportunity. Arbitrageurs—traders who profit from small price discrepancies—help to keep the price of UST in check by selling LUNA for UST when the price of UST is below $1 and buying LUNA when UST is worth more than $1. If, for example, UST slips to https://cryptolisting.org/ $0.95, traders can then buy a bunch at that price but sell it for $1 of LUNA. In doing so, UST supply is reduced and, therefore, the price heads back up—at least, in theory. But some advocates of decentralization argue that a centralized entity maintaining a basket of real-world assets introduces a single point of failure into the system.

What Is UST?

It’s always advisable to keep up with the latest developments and consult experts before making investment decisions. Alex leans on his formal educational background (BSBA with a Major in Finance from the University of Florida) and his on-the-ground experiences with cryptocurrency starting in 2012. Alex works with cryptocurrency and blockchain-based companies on content strategy and business development. He privately consults entrepreneurs and venture capitalists on movements within the cryptocurrency industry.

Validators must meet strict standards and constantly monitor and participate in the consensus process. When a validator gets slashed, they lose a small portion of their stake as well as a small portion of their delegator’s stake. Slashed validators also get jailed, or excluded, from consensus for a period of time.

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Validators vote with their entire stake unless specified by delegators. For this reason, it is very important that each delegator votes according to their preferences. A cliff is the period of time that must pass before Luna can begin to be unlocked.After the cliff period has passed, a small amount of the vesting Luna will be released every block according to the vesting period.

That brings with it risks such as opacity over governance structures and whether the actual reserves held match up with what’s claimed—in turn, creating a focus for regulatory attention. I’m a technical author and blockchain enthusiast who has been in love with crypto since 2020. Its popularity is mainly due to its phenomenal growth in market capitalization. The Terra Station dashboard displays a range of on-chain data, including transaction volume, staking returns, and the number of active accounts. Arbitrageurs purchase $100 of LUNA and convert it to $102 worth of UST on the Terra Station Market Module. Terra burns the LUNA and mints UST in the process, increasing supply.

When the UST supply falls below $1, LUNA increases the supply to keep the UST pegged to the dollar. Users who want to mint Terra stablecoins must burn a quantity of LUNA equal to one dollar. The community treasury receives a small fraction of the LUNA tokens used to mint stablecoins, known as seigniorage, making stablecoin minting beneficial for the network. It’s akin to the seigniorage that central banks earn from when they produce money.

Meanwhile, Kwon said Terraform Labs would use its latest $150 million in funding to invest in groups that build financial apps on Terra’s blockchain. He likened the scouting and investing in other groups as akin to a “Y Combinator demo day type of situation,” a reference to the popular startup pitch event organized by early-stage investor Y Combinator. Each time someone buys something—like an ice cream—using UST, that transaction generates a fee, similar to a credit card transaction. That fee is then distributed to people who own Luna tokens, similar to a stock dividend. If you want to keep up with the trends of blockchain industry, join our communities on Discord, Reddit and Telegram. On the flip side, the value of LUNA can also decrease if UST is perceived as unstable.

Like most other proof-of-work coins, staking LUNA means bonding the coin to a validator and receiving staking rewards. Users can stake LUNA to validate the network and receive rewards accrued through transaction fees. So, UST aimed to maintain its dollar peg with a seemingly infinite resource of human beings aiming to make a quick buck. The demand for UST by the various merchants and dApps also keeps the wheel in motion.

Previously, the Terra Luna community approved a revival plan that involves a Terra Luna hard fork from the failed token, the creation of a new blockchain Terra 2.0 and a new token. After a subscription expires, the deposited principal can be withdrawn. According to explicitly specified conditions, yields generated from protocols like Anchor can also be allocated to service providers. Furthermore, Pylon Gateway is a decentralized project launchpad and crowdfunding platform similar to Starterra. Users can also mint mAssets and take on a leveraged position, with a maximum allowed LTV ratio of 150%. That allows to farm mAssets and build a leveraged position in an asset an investor may be bullish or bearish on.

The South Korean firm Terraform Labs was founded in 2018 by Daniel Shin and Kwon, who is now the company’s CEO. Kwon is a 29-year-old former Microsoft employee; Shin now heads the Chai online payment service, a Terra partner. Kwon said many Koreans have used the Chai service to buy goods like movie tickets using Terra cryptocurrency. If you would like to know where to buy Terra Classic at the current rate, the top cryptocurrency exchanges for trading in Terra Classic stock are currently Binance, Bybit, BYDFi, OKX, and DigiFinex. According to the recovery plan, the existing chain and token have been rebranded as Terra Classic. The new LUNA tokens were airdropped to existing holders of LUNA and UST before the depeg and subsequent crash occurred.

CoinMarketCap has an educational section — Alexandria — to teach you all about crypto and how to buy your first coins. All tokens locked or vesting are staked at genesis, and must be unbonded to become liquid. Delegators can bond Luna to any validator in the active set using the delegate function in Station. Delegators start earning staking rewards the moment they bond or stake to a validator. Terra Station is the official Terra crypto wallet and dashboard that allows LUNA holders to access their funds, stake, and participate in governance.

Terraform Labs, which oversees the Terra cryptocurrency project, has benefited from its rising popularity. The company said Friday that investors like Arrington Capital, Lightspeed Venture Partners, and Pantera Capital have pledged $150 million to help it incubate various crypto projects that are connected to Terra. Terraform Labs and its partners have built apps that operate on the company’s blockchain technology that helps keep a permanent and shared record of the firm’s crypto-related financial transactions. The project has proved popular in the Asian markets for e-commerce and has a large userbase in South Korea. For example, taxi users in Mongolia can pay some drivers in the stablecoin Terra MNT pegged to the Mongolian tugrik. Tokens minted on the platform are known as Terra currencies and exist alongside the network’s native LUNA token for governance and utility.

In turn, the validator secures the network by processing transactions similar to the work of a miner on Bitcoin. A delegator will stake their LUNA tokens behind a validator they believe will effectively and honestly process network transactions. Each validator can also set a custom percentage of the rewards they will distribute to their delegators. Stablecoins on the Terra network use a different method to maintain price parity than collateralized fiat-backed stablecoins and crypto-backed stablecoins.

In addition, Terra is supported by the Terra Alliance, a group of businesses and platforms advocating for the adoption of Terra. In February 2019, the company announced that e-commerce platforms from 10 different countries, representing a user base of 45 million and a gross merchandise value of $25 billion, were members of the alliance. There is a theory that the additional term “classic” is a reference to the Ethereum / Ethereum Classic split in 2017.

1. Terraform Labs and its partners have built apps that operate on the company’s blockchain technology that helps keep a permanent and shared record of the firm’s crypto-related financial transactions.
2. There were arguments to return the tokens to the community pool for development and growth of the chain, and there were arguments to burn the tokens.
3. The LUNA token and UST are mutually dependent, as the success of the Terra ecosystem is a function of the adoption of UST as a stablecoin.
4. The Terra ecosystem has several notable protocols based on the UST stablecoin, particularly in the DeFi space.

Terra is a next-generation blockchain payment network that is interwoven with stablecoins and powered by its own LUNA token. Terra is a layer-1 blockchain technology with smart-contract capabilities that serve as a payments-focused fintech ecosystem with algorithmic stablecoins whose value is maintained by internal algorithms. Daniel Shin and Do Kown founded Terra alongwith Terraform Labs, the South Korean firm driving the Terra ecosystem, in 2018. Terraform Labs raised US$32 million in funding, with Binance Labs, OKEx, Huobi Capital, and Dunamu & Partners, the investment arm of Seoul-based crypto exchange Upbit, among the major investors. In April 2019, the white paper was issued for the blockchain the same month that the mainnet went live. According to the document, Terra is touted as a price-stable, growth-driven stablecoin that achieves price stability via an elastic money supply and stable mining incentives.

Treasury Secretary Janet Yellen cited UST’s collapse as yet another reason that stablecoins need to be regulated in 2022. The mainnet release of Terra’s public blockchain network happened on April 24, 2019. However, the project was originally founded in January 2018 by two South Korean entrepreneurs. In the future, there will be a lot of opportunities for Terra to take advantage of its cross-chain compatibility with other Cosmos SDK blockchains.

If LUNA in the future is worth $1,000 or even $10,000 or more, its supply curve will be highly inelastic since burning 1 UST at a price of $10,000/LUNA burns a fraction of the LUNA it does now. While LUNA has shown periods of growth in the past, its recent trajectory has raised concerns among many analysts. The Terra platform’s ability to address its challenges, the broader health of the cryptocurrency market, and global economic conditions will influence its future price. Although some are hopeful for a resurgence, it’s essential to approach such optimism cautiously, given the setbacks faced in 2022.

In our Terra guide, we learned how UST was designed and what its goals were. The project is currently mired in controversy, and people collectively lost hundreds of millions of dollars holding UST, Luna, and using Terra’s dApps like the Anchor Protocol. Terra  invests in making developing on its platform a pleasant experience; it hosts a wide variety of developer tools, documentation, and guides for anyone who wants to build in the Terra ecosystem. Terra UST crashed when everyone suddenly sold all their LUNA and all their UST. The price of BTC was also falling, further destabilizing UST’s base of reserves (20% of its value was supposed to be collateralized by the price of BTC).