Friday, July 1

Terra: The blockchain designed for stablecoins

The stable coins came to the market to minimize the volatility of cryptocurrencies. We have already talked about Tether and DAI. But Terra comes to offer a space for the aforementioned and others, without forgetting its own token LUNA.

The goal is to use your token, Luna, to algorithmically collateralize to stablecoins and enable your own token as governance and means of payment in the blockchain. Stablecoins will be used on the platform DeFi and electronic payments. With this, Terra creates a framework that others can use to run their own applications, stable and secure payment systems from anywhere in the world.

A little history

Terra Money is a creation of TerraLabs, a South Korean company founded by Daniel Shin y Do Kwon which began operations in January 2018.

The idea was to create a high speed infrastructure to deploy DeFi apps fully integrated into your blockchain developing your token, algorithmic stablecoins, and tokenomics to make the project real.

The laboratory was integrated with Mirror Protocol, the electronic payment system Chai and Anchor Protocol. With this, it gained momentum in development in 2019 announcing the launch of the mainnet and whitepaper.

How does it work?

Terra works using the protocol of “Proof of Stake” (PoS) or “Proof of Stake” for validators to do staking of the LUNA token to vote and validation on the network. Thanks to this consensus method it also offers high speed and low commission costs.

It has also been built for the development of advanced tools for smart contracts y dApps.

But the grace is being able to execute smart contracts, stablecoins and DeFi services within your network.

The operation is carried out in a decentralized way and is controlled by smart contracts enabled by CosmWasm, allowing their development with Rust, Go o AssemblyScript, use Terra stablecoins, onchain swaps, layer one oracles natively, and expose DApps user bases to Terra payment services without the need to use permissions.

In September, it updated its protocol to the version Columbus-5, modifying the tokenomic model of the project towards the burning of all the LUNAs used to mint TerraUSD (UST), instead of assigning a part to the community pool as before.

The integration of LUNA into the standard Inter-Blockchain Communication (IBC) allows the Terra network to communicate and interact with operational protocols in Cosmos. Thanks to this, it obtains a more generalized adoption in this ecosystem, allowing cross operations in several different blockchains.

What are the utilities of your LUNA token?

As we said before, the first function is protect network from the misuse of its resources by using its currency to pay commissions for operations within the system.

The second utility is he staking necessary to enable nodes in the network under the PoS, since each validator must make a certain amount of it to have voting power and participate in the generation and validation of blocks.

In third place, exercise the governance about the Terra protocol through a DAO and the community.

Finally, for algorithmically collateralize stablecoins within the system. With which to collateralize any fiat currency and the coins TerraUSD (UST) y TerraKWR (KWRT).

What are its phases?

Stakers operate with LUNA through a series of phases, both for validators and for those who participate in DeFis protocols:

  • Unbonded: It means that you can trade the tokens freely within the Terra ecosystem
  • Bonded: They are staked and therefore frozen, you will not be able to mobilize them
  • Unbonding: In this phase for 21 days you will have in “unlinking” the LUNA tokens that you had in staking. During this period, your tokens will not produce a reward and you will not be able to mobilize them either. After this phase, the tokens are in the Unbonded phase

How to perform LUNA staking?

To perform staking it is necessary to download Terra Station, which is the DApp and official wallet of the cryptocurrency to carry out operations in the ecosystem.

There you have all the information about the cryptocurrency: current price of the token, network commissions, number of tokens in circulation, the size of the LUNA staking pool, the rewards generated by the pool and the total number of people within the ecosystem.

Once connected, all you have to do is choose the “stake” option, where you have a list of the available pools.

You can also choose functions in terms of governance and its exchange platform.

In the exchanges section you can convert the LUNA tokens into the stablecoins available on the platform.

In the governance part, you will be able to exercise your vote on the different proposals of the system.

You can also create and deploy smart contracts.

How are Terra stablecoins generated?

As we said before, these are generated algorithmically. The system asks burn LUNA tokens to generate a quantity of stablecoins supported on the platform.

“Burning” instead of “freezing” tokens is the main difference with respect to other systems such as MakerDAO and its DAI stablecoin, where a quantity of tokens are injected, they are overcollateralized and in return DAI stablecoins are obtained.

This allows:

  • The value increase and maintain a flow of tokens adjusted to the realities of the Terra market
  • Hold a value parity between generated stablecoins and total LUNA tokens
  • Create a project financing mechanism, since in the burning process and the commissions are assigned to the Terra Treasury where they can be used in the future development of the protocol

If you want to create 2,000 UST, you must have a quantity of LUNA tokens a little higher than 2,000 dollars. This will allow you to generate the UST tokens, while the system burns your LUNA tokens, allocates the commission to Terra’s treasure and then sends them to your wallet.

We can not only generate stablecoins pegged to the dollar (such as TerraUSD – UST), but also create TerraKWR (KRT) and 17 other currencies that can be generated and mobilized within the system.

Anchor Protocol y Mirror Protocol

Two of the great DeFi functions can be found in Anchor y Mirror Protocol.

Anchor Protocol is a liquidity market where you can use stablecoin UST to make loans, exchanges, obtain returns at a fixed interest rate depending on the trends that occur within the market.

Mirror Protocol is a project focused on create a synthetic asset exchange that operates on the Terra network. This is a much more elaborate and specific product, but one that demonstrates Terra’s potential as a first-rate DeFi platform.

Terra’s token, Luna, is trading at $ 93.

Javier Molina: “There are not many Blockchains that have this purpose in the way of Terra”

We consulted our expert and professor in the cryptocurrency investment course, Javier Molina, for general details of the stablecoin environment.

-Approximately how many stablecoin blockchains currently exist?

There are not many Blockchains that have this purpose in the way of Terra. That is why this project is especially attractive and its evolution must be closely followed.

-In addition to reducing volatility, what other qualities do stable currencies have?

They allow from generating passive returns without price risk, to being the benchmark when we want to do operations that can range from payments without volatility to more complex financial operations. It is the reference currency when, without leaving the crypto environment, you want to exit another type of risky asset.

-Between LUNA, Tether, DAI and USDC, which one do you consider the best option?

They are different concepts even having a similar purpose. USDC is the centralized version of Stablecoins, with certain guarantees of having a more or less well-backed collateral. DAI is the first of the decentralized Stablecoins, with the collateral in crypto. And UST is the algorithmic stablecoin that can take the most relevance.

Learn how to invest in bitcoin and other crypto assets with the course that takes Investment Strategies

Leave a Reply

Your email address will not be published.