Terra Coin: All You Need to Know

Many individuals are wanting to invest in so-called stablecoins like Terra because of their more predictable values as cryptocurrencies like Bitcoin, Ether, and Dogecoin have risen and fallen in value in recent months.

 

Terraform Labs, the company in charge of the Terra cryptocurrency project, has reaped the benefits of its growing popularity. Investors such as Arrington Capital, Lightspeed Venture Partners, and Pantera Capital have invested $150 million to assist Terra incubate numerous crypto businesses.

 

Terraform Labs and its partners have developed apps that use the company's blockchain technology to retain a permanent and shared record of the company's cryptocurrency related financial transactions.

 

Here's all you need to know about Terra and the firm that brought it to life.

 

What exactly is Terra?

 

Terra recently overtook Ethereum as the second-largest DeFi protocol, with approximately $18 billion in total value locked, according to data provider DeFi Llama.

 

Terra is a decentralized finance (DeFi) ecosystem that develops algorithmic stablecoins. It was founded in 2018 by Terraform Labs and its co-founders Do Kwon and Daniel Shin. Stablecoins, or cryptocurrencies tied to reserve assets like the US dollar, are commonly utilized in DeFi lending and borrowing applications.

 

Terra bills itself as a next-generation blockchain payment network powered by its own LUNA token and interwoven with stablecoins. Terra is a layer-1 blockchain protocol with smart-contract capabilities that functions as a payments-focused fintech ecosystem utilizing algorithmic stablecoins, the value of which is kept stable by internal algorithms. 

 

The Terra blockchain's white paper was released in April 2019, the same month its mainnet went live. Terra is described as a price-stable, growth-driven stablecoin that achieves price stability through an elastic money supply and stable mining incentives, according to the document. 

 

Seigniorage – the profit generated from creating currency — is also used by the protocol to encourage transactions and enable wider adoption.

 

The protocol has released stablecoins tied to the dollar, euro, Chinese yuan, Japanese yen, British pound, South Korean won, and the International Monetary Fund's special drawing rights, an international reserve asset that supplements the multilateral lender's member countries' currency reserves.

 

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Daniel Shin and Do Kwon, Founders of Terra (source)

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Who is in charge of Terra?

 

Daniel Shin and Do Kwon, who are currently the company's CEO, created Terraform Labs in South Korea in 2018. Shin, a Terra partner, is a 29-year-old former Microsoft employee who currently manages the Chai online payment business. Many Koreans, according to Kwon, have utilized the Chai service to purchase products such as movie tickets using Terra cryptocurrency.

 

Terraform Labs does not profit from cryptocurrency transactions and instead relies on outside funding to stay afloat, according to Kwon. According to deal-tracking service PitchBook, it has raised $57 million from investors such as HashKey Digital Asset Group, Divergence Digital Currency Fund, and Huobi Capital. The funds raised are in addition to the $150 million pledged previously.

 

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What is the significance of Luna rising?

 

A number of variables have contributed to the increase in Luna's price. The presence of delta neutral traders, a group of investors that hold several positions to offset delta risk, was signaled by the negative funding rate in key exchanges, according to Delphi Digital, a top cryptocurrency research firm.

 

"Investors buying spot LUNA to lock up in the Astroport lockdrop, then hedging their position via perpetual futures to remain delta neutral, likely sparked the price surge over the last several days," Delphi Digital stated in a research note. 

 

Terra's progress in its burn process could also be a big factor in the price increase. Similar to Ethereum's EIP-1559 upgrade, which introduced the deflationary ETH burn mechanism, proposal 44 launched in October planned to burn 90 million tokens stored in the community pool.
 

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Terra’s Price chart (source)

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What are the Potential Dangers?

 

Because of the risks, financial experts advise just investing as much as you can afford to lose in any cryptocurrencies. Before investing, you should think about and understand the possibility of huge price movements.

 

When it comes to Luna, "the biggest risk" is that investors will lose money if Terra's stablecoins fail to keep their pegs, according to Hougan. Luna serves as a sort of volatility absorber for Terra's stablecoins, therefore Luna's performance may be similar to Terra's stablecoins, he claims.

 

While Terra's stablecoins, including the dollar-pegged UST, are now performing well, it is hard to anticipate how any asset will perform in the future or whether it will be able to resist extreme volatility or a bear market.

 

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What is Terra's mechanism of operation?

 

Consider purchasing a movie ticket, which is one of the most common things purchased through CHAI (one of Terra's most popular decentralized programmes, or dApps). To begin, you must first create your own Terra stablecoin on the website, burning the required number of LUNA tokens. You can use the CHAI mobile app to pay for your tickets online or in-store after you have your stablecoins.

 

Terra's blockchain creates a tiny transaction fee when you buy a ticket with your stablecoins, which is divided to LUNA delegates - token holders who choose to delegate their LUNA coin to a staking pool in order to safeguard the network.

 

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What are Terra's plans for the future?

 

Terraform Labs intends to use Terra's blockchain and associated cryptocurrencies, including one tied to the Korean won, to build a digital financial system that is independent of big banks and fintech companies. 

 

So far, the Chai payment app, which is built on Terra's blockchain, has been its main source of growth in Korea, where consumers have used it to buy things in businesses, like coffee. The company's linked Mirror trading app, according to Kwon, is growing in China and Thailand.

 

Apart from cryptocurrencies, Terraform Labs is working on a variety of other projects, including the Anchor app, which is a high-yield savings account for Terraform Labs' digital coinage holders. Meanwhile, users can use the company's Mirror programme to generate synthetic financial assets that resemble more traditional ones, such as "tokenized" corporate stock representations. 

 

These synthetic assets are designed to let people like "a tiny retail trader in Thailand" acquire shares and "have some exposure to the upside" of equities that they wouldn't have been able to gain otherwise, according to Kwon. 

 

However, some critics believe that the Securities and Exchange Commission in the United States will eventually regulate synthetic stocks, which are now unregulated.

 

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Bottom Line: Future of the Terra Crypto Ecosystem

 

Terra is striving to establish itself as the world's premier ecommerce stablecoin payment and DeFi service provider. Terra's unique value offer is accelerating blockchain adoption in the Korean and Asian industries, while its primary applications have enormous worldwide potential. 

 

Merchants and consumers are encouraged to use Terra because of the platform's discount model, fast settlement, and relatively cheap costs for goods transactions. 

 

The Terastation wallet, Terra Bridge, the straightforward approach to application and blockchain development, and the cross-chain value transfer functionality provided by Cosmos' interoperable IBC solution all contribute to a growing blockchain ecosystem.