Cryptocurrency News

What Is Terra? Know All About The Stablecoin That’s Gained Prominence

Terraform Labs, a start-up by Do Kwon and Daniel Shin in 2018, founded the Terra ecosystem

These days, so-called stablecoins like Terra have gained prominence with many people wanting to invest in those because of their more predictable prices, as cryptocurrencies like Bitcoin and Ether have fluctuated in value over the last several months. Terra is a public blockchain technology that uses a set of algorithmic decentralised stablecoins to power a vibrant ecosystem that makes DeFi accessible to the general population. TerraUSD, a stablecoin created by Terraform Labs, is one example. It keeps its peg to the US dollar by relying on a network of arbitrageurs to purchase and sell Terra’s cryptocurrency, LUNA. Also a governance token, LUNA gives holders control over the system through voting.

Terra’s value almost doubled in February, rising from a low of $47 to $91. It spiked sharply around the start of the Russia-Ukrainian conflict.

Terraform Labs, a start-up by Do Kwon and Daniel Shin in 2018, founded the Terra ecosystem. The ecosystem is a rapidly growing network of decentralised applications, resulting in sustained Terra demand and rising Luna prices.

According to the Terra website, the Terra protocol creates stablecoins that track the price of any fiat currency using a combination of open market arbitrage incentives and decentralised Oracle voting. On the Terra blockchain, users may spend, save, trade, and swap Terra stablecoins.

Terra creates and burns tokens while also rewarding arbitrage. You must first mint Terra before you can purchase it. You’ll have to pay the going rate in LUNA to do so. The protocol consumes such LUNA and burns them, limiting their availability and raising the price of LUNA slightly. In order to mint LUNA, you must first convert Terra stablecoins. Those are burned, and the price of Terra rises just a smidgeon.

According to Terra’s whitepaper, the elasticity of LUNA’s supply ensures that the stablecoins will never be out of balance. Their success, however, is contingent on arbitrageurs’ sustained interest in Terra. Some analysts fear that if arbitrageurs determine Terra is doomed to fail or relocate their money to another project, Terra will not be arbitraged back to its $1 peg. The community spirit is crucial in this crypto project.

At the time of writing, the value of Terra was $90.85, according to CoinMarketCap.

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