What is Terra Luna? | Terra Explained for Crypto Beginners 

what is terra luna

This guide is here to help you understand why Terra is going to be an important ecosystem in the DeFi space. 

What is Terra Luna?

Created by Terraform Labs and its co-founders Do Kwon and Daniel Shin in 2018, the Terra blockchain is an open source stablecoin network. The concept was born out of the idea to drive crypto and blockchain technology adoption through a cryptocurrency that offers price stability and usability. It aims to build a global payments network and plans to achieve this by creating algorithmic decentralized stablecoins that track the price of fiat currencies e.g., US Dollars. With all the added benefits of blockchain technology, it has the potential to be faster, cheaper, and more efficient than existing payment systems. 

How Terra Began

Terra’s creation was backed by the Terra Alliance, consisting of 15 e-commerce companies in Asia that have over 45 million users and collectively process $25 billion in annualized transaction volume. 

Terra was built on Cosmos SDK and runs on a proof-of-stake (PoS) consensus. The Terra protocol consists of a growing number of stablecoins as well as the native token, Luna. Luna is at the heart of Terra’s ecosystem, and has a lot of utility – as it can be used for staking, governance, and collateral. It also is dynamic in supply, with the ability to fluctuate according to the protocol’s algorithm.

UST

The most common stablecoin that you will have likely heard of is UST, but Terra does also have stablecoins that peg to the Euro and British Pound as well. As previously stated, Terra’s stablecoins are algorithmic. They maintain their stability through a partnership with Luna, and effectively contract and expand the money supply as needed. For example, the UST stablecoin will attempt to maintain a value of $1 per token and so for every UST minted, users will need to burn the dollar equivalent in Luna tokens and vice versa.

ust

Terra’s Security & Stability

Miners are incredibly important for the Terra network, for both the security and stability of Terra. Miners are incentivized to participate in the network through a stable reward system, which offers predictable rewards. Those rewards are collected via transaction fees and the burning of Luna tokens. 

Recent Milestones

Over the past 12 months, Terra have delivered several changes to the network, including the huge Columbus 5 network upgrade, and delivering interoperability via the Terra Bridge and integration with Wormhole. Columbus 5 gave more incentives to stake in the Terra ecosystem and allow for more applications to be created on the network. The network is developer friendly, and there is now expected to be a lot of dApps built – increasing the adoption of the Terra blockchain. The Anchor protocol has also been a huge success on the network, enabling users to gain yields of ~20% (at the time of writing). Another decentralized finance application on Terra that has had big success is the Mirror protocol, which enables you to trade synthetic assets. These are just two of a number of applications that have helped Terra become the second-largest blockchain when measured by total value locked (TVL).

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