Terra (LUNA) — an overview of the algorithmic stablecoin platform and its token
On May 28, 2022, the Terra ecosystem launched a new network. The old network, Terra Classic (LUNC), co-exists with LUNA 2.0. Cryptocurrency exchanges Binance, KuCoin, OKX and others have listed the new LUNA token on their platforms.
Within the Terra network (LUNA) is a protocol for creating stablecoins (coins with a stable value tied to an underlying asset), an oracle system for tracking value, and smart contracts. The blockchain is built using the Cosmos SDK.
Purpose of the Terra project
The platform gained the greatest popularity and demand due to the mechanism of creating stablecoins with instant settlements. To do this, the network uses a special price stability algorithm that adjusts the supply of the asset to maintain a given value.
In addition, the developers wanted to reduce the centralization in the market and remove certain technical restrictions with the help of an open financial infrastructure.
Terra technical features
The highly decentralized nature of blockchain makes it a suitable option for building a digital economy. The following features that positively influenced the popularity of the project can be distinguished:
- Programmability. The network allows you to create smart contracts using Rust, Go, and AssemblyScript, and add additional application functionality using oracles. Oracles are autonomous sensors that transmit data to and from the blockchain.
- Interoperability. The network is designed for the most compatible operation in several chains connected by the Cosmos protocol. The developers plan to add more and more high-performance blockchains over time.
- A transparent payment ecosystem built from the ground up to replace the complex asset valuation algorithm used in fiat systems.
Now let's talk directly about the primary function, which was the actual usefulness of LUNA.
How LUNA works
Terra used a programmable infrastructure to form a stablecoin market with automatic price stabilization. The primary solution for this purpose is a flexible emission mechanism. The platform automatically adjusts the supply of stablecoins to ensure that values remain pegged to the underlying asset, such as the US dollar.
Several types of stablecoins were available in the Terra ecosystem, from the most popular TerraUSD (UST) to TerraMNT, pegged to the Mongolian Tugrik. In fact, the underlying asset can be anything.
Terra users could create stablecoins by burning LUNA tokens in return and vice versa. At the same time, the number of coins burned for minting 1 UST is determined based on the current LUNA exchange rate against the dollar. This gave considerable scope for arbitrageurs who wanted to make money on changes in market prices.
In addition, LUNA could be used for staking and receiving passive rewards.
Collapse of Terra (LUNA)
Terra and its leader, Do Kwon, held a prominent position in the world of cryptocurrencies for 4 years, which ended in a catastrophic fall. The network collapsed with losses estimated at up to $60 billion, shaking the digital currency market.
There are two stories regarding Luna: the TerraUSD (UST) stablecoin and the LUNA coin. After the crash, a massive liquidity crisis in the crypto space led to an even more catastrophic loss of value.
The Luna crash was caused by issues with the TerraUSD (UST) algorithmic stablecoin:
- On May 7, over $2 billion worth of UST was unlocked (removed from the protocol), and hundreds of millions were liquidated. There is debate whether this was in response to higher interest rates or a malicious attack on the Terra blockchain.
- Massive sell-offs led to the decoupling of the UST price from $1.
- Once a large amount of UST was withdrawn, the stablecoin continued to decline. In a panic, more people sold off the UST, leading to additional LUNA minting and an increase in the circulating supply of LUNA.
- Due to hyperinflation, the token has depreciated. At this point, many exchanges began delisting LUNA and UST pairs.
The collapse of Terra affected the entire cryptocurrency market, which at that time was already very volatile. It is estimated that it led to a fall in the price of bitcoin and the loss of capitalization of $ 300 billion in the entire crypto space. Crypto giants Voyager and Celsius have filed for bankruptcy. Three Arrows Capital (3AC) was also forced into liquidation. Many lost their savings and experienced financial hardship.
Network restart
LUNA 2.0 is a new version of the token on a new blockchain, the purpose of which was to save the Terra ecosystem.
At the suggestion of TerraForm Labs founder Do Kwon, the new network replaced the existing Terra network and severed ties with the UST stablecoin. Many existing dApps and features on the old chain have been moved to the new chain. However, some developers have moved to other networks, such as Polygon.
The old network — and the old LUNA — have not disappeared; they coexist. The old network is known as Terra Classic (LUNC).
Where to buy Terra (LUNA)
We suggest using exchangers to buy LUNA — it's as fast, simple and anonymous as possible:
- Select the desired payment direction on our website, for example, QIWI -> Terra.
- View the list of exchangers that support this direction and choose the one that suits you according to the rate and limits.
- Click on its name to go to the site.
- Create and pay for an application.
Our service makes the process very convenient and profitable because you can quickly find an exchanger with the most pleasant rate, moreover, reliable and efficient.
