For lovers of stablecoin, there are now many options to choose from and where to invest. And not all stablecoins are fiat-backed. There are a variety of methods and networks that try to keep stablecoins fixed. Terra is one such project that develops a unique approach to stablecoins and the tools developers can use to make their own tokens managed.
Terra is a smart contract platform and a network of algorithmically-pegged fiat-currency tokens. Built on the Cosmos SDK and Tendermint Consensus, Terra stablecoins offer instant payments, low payouts, and seamless cross-border transactions. The protocol contains two main types of tokens, Terra and Luna. Luna's main task is to govern and protect the integrity of Terra by locking the value inside the Terra ecosystem by installing staking.
Terra is a protocol with its own blockchain independent of other blockchains such as Ethereum or Solarium. This means that a series of blocks, wallets and the entire Terra infrastructure are operating independently from other projects.
Terra was created by Daniel Shin and Do Kwon in January 2018. The two envisioned the project as a way to drive rapid adoption of blockchain and cryptocurrency technologies with a focus on price stability and usability. Kwon took over as CEO of Terraform Labs, a company that follows Terra.
Daniel Shin researched all the possible existing issues that we face in payment networks and cannot be simply solved by continuous improvement. Do Kwon explained how Terra can solve all the problems and converted them into an opportunity to make money.
Terra was created with the sole purpose of facilitating the mass acceptance of hidden funds by building digital assets such that they do not change prices compared to the world's major currencies.
The project's vision is that with the adoption and user involvement of a large payment network, it will be able, for the first time, to bootstrap the blockchain payment network to the right scale and provide the most powerful products and use cases through its infrastructure.
Terra smart contracts are powered by CosmWasm technology, supported by Rust, Go, or Assembly text, and can work with multiple chains connected by the Cosmos IBC or Inter-blockchain communication protocol.
The basic principles revolve around blockchain technology, of which LUNA is based on:
· Peer-to-peer Transmission- Any participant can transfer LUNA to another participant via digital wallet without bureaucracy, banks, overpayments, or delays. LUNA can be transmitted between an unlimited number of people, quickly and simultaneously.
· Distributed Database- Terra (LUNA) is a delegated proof-of-stake network (DPoS). This means that authenticators authorize transactions and add blocks to the blockchain, their efforts being rewarded with LUNA.
· Transparency- To use the Terra blockchain and make transactions using LUNA there is no requirement to get permission from any authority. The participant can read the entire blog and has the opportunity to write a transaction in a future blog.
· Recordkeeping- The blockchain acts as a ledger and tracks transactions. At Terra, when a block appears, users can quickly rely on the performance of content that is unchanged. LUNA acts as a security for Terra and enables its DPOS blockchain.
The use case of Terra Luna are:
· Terra Luna currency is designed to govern the mines, pay network fees, and participate in administrative votes.
· LUNA is the token of the Terra platform and is used in the issuance of stablecoins (TerraSDRs), as a means of price stability, as well as staking and network domination.
Some projects which are running on Terra blockchain are:
1. Anchor Protocol
2. Mirror Protocol
3. Nexus Protocol
4. Loop Finance
Luna Foundation Guard is raised $ 1 billion to make bitcoin reserve for UST stablecoin
Anchor, a lending and borrowing project on Terra reduced by 50% within a month
Luna increases As Token Becomes 'Latest Shiny Thing' on Crypto
USD Coins are backed by US Dollars. $ 1 can be exchanged for 1 USD through cryptocurrency exchanges. The USDC is then created while the Actual US Dollar is being stored. If you return USDC later, the dollars are returned and the USD coins are forgotten.
Similarly, gold-based stablecoins use reserves of precious metals to finance trading. Crypto-backed stablecoins do the same — however, given the volatility of many tokens, stablecoin backed, like Bitcoin should keep large securities reserves in order to ensure a depreciation of Bitcoin and not cause a decline in the value of stablecoin.
Instead of keeping reserves, currencies like Terra USD rely on algorithms that keep the stablecoin value similar to a central bank, which changes the value of fiat currency by controlling the money supply. When the price of stablecoin rises sharply, its algorithms add more tokens to lower their price — or vice versa if the price drops sharply. Such measures are all coded in its smart blockchain contracts, which work automatically when the specified conditions are met.
So investors should avoid in investing such type of Project where stablecoin supply is based on the algorithm.