Killer Whale Crypto
August 16, 2021, 12:01 PM UTC
This article describes the fundamentals of the Terra project and it's native token LUNA
Terra (LUNA): A Cryptocurrency Project Worth Looking Into
Terra is a cryptocurrency project which was originally created three years ago by Korean software company, Terraform Labs. Terraform Labs was founded by Daniel Shin and Do Kwon. The Terra project is designed to support a basket of stablecoins. What separates the Terra project from other similar cryptocurrency projects is that the Terra project is designed to operate as the backend protocol for the implementation of the cryptocurrency apps and products designed by Terraform Labs. Many of the cryptocurrency projects designed within the cryptocurrency space simply do not have the advantages of corporate backing, in the same way that Terra does. Terra is considered one of the few cryptocurrency projects which looks outward – rather than inward – regarding the project’s approach to growth and adoption. In this article, we will be looking at the innerworkings of the Terra project, as well as Terra’s native token, LUNA.
What is Terra?
The Terra mainnet was launched in 2019, and allows the creation of stablecoins, which are pegged to fiat currencies. The most common stablecoin created on the network is the UST token: UST is an algorithmically balanced stablecoin which represents the price of USD. UST is implemented in the same way that tokens such as USDT are utilized, however its value is not backed by the traditional 1:1 ratio of USD against each coin minted.
To mint UST on the Terra blockchain, the creator of the stablecoin needs to burn the equivalent amount of Terra’s native token LUNA. One of the most intriguing functions of Terra, is that the UST stablecoins created on its blockchain can respectively be burned by the network, in exchange for LUNA tokens. This ability to burn the network’s stablecoin – UST – in exchange for the native LUNA token is what stabilizes the UST tokens created on the Terra blockchain. The ability to burn the LUNA token at its current value, as well as burn the network’s UST stablecoins at their current value, gives Terra users the unique opportunity to profit from each coin’s rebalancing. A user can potentially burn a Terra token, against the UST stablecoin on the network – or vice versa – to benefit from the difference in whichever token is inaccurately balanced. This ability to burn both UST stablecoins and LUNA utility tokens – in exchange for one another – stabilizes the supply and demand ratio of each, thus reenforcing the stability of the network.
The validators of the Terra network also provide Oricle services in order to confirm that the prices of both the LUNA token and the UST stablecoins are being rebalanced accurately. It is also important to mention that any discrepancies between the valuation of the LUNA token and the UST stablecoin are incredibly uncommon. This is due to the high number of network participants who are consistently arbitraging the value of both cryptocurrencies against one another.
One of the biggest factors behind the value of the LUNA token can be contributed to the fact that a small percentage of each LUNA token which is used for the minting of stablecoins, is not burned; rather, this small percentage of LUNA goes directly to the Terra community treasury. The holders of the LUNA token are responsible for determining how these tokens are spent. LUNA also acts as a governance token, in that its holders are also tasked with voting on the implementation of changes to the function of the Terra blockchain.
All of these factors which balance the LUNA token against the stablecoins built within the Terra blockchain – along with the network governance system for the project – work harmoniously to sustain Terra’s delicate balance of gravitational stability. This is both a highly functional and monumental achievement for the Terra project: Especially considering the unique tokenomics behind the LUNA token.
Genesis of the LUNA Token
The LUNA token was not released to the public as a traditional ICO; rather, the token was privately sold to a relatively small number of private investors, during its genesis. These investors included Binance, OKEx, Huobi, and a few other smaller names within the cryptocurrency community. The exact number of LUNA tokens sold during this period is debatable; however, it likely lies between 210M to over 380M tokens. Each of these privately sold tokens ranged between $0.16 to $0.80 per coin, which is a dramatic difference in comparison to its current price of nearly $22.00 at the time of writing this article.
During the genesis of the LUNA token, less than 5% was available for purchase by the average investor. Approximately 10% of the tokens were kept by Terraform Labs, 20% was given to the contributors and employees. 25% was allocated to the original backers of the project, and 20% was used for the project’s stability reserves. The remaining 20% of the supply was issued to the Terra Alliance, which represents a group of 16 investment banks, operating in 40 countries around the world. The reason these Genesis tokens were divided as such was to ensure the Terra project’s ability to properly support algorithmically balanced stablecoins, during times of high volatility within the cryptocurrency market.
Terra is a project that appears to be doing everything right. Although the staking rewards for LUNA are currently sitting at a somewhat unimpressive 1.5% return per year, the fact that the Terra blockchain can settle transactions within approximately six seconds – as well as LUNA’s fantastic price action – certainly weigh the benefits in Terra’s favor.