The three-month rally of Terras (LUNA) increased its token by 674%, which put LUNA in the ranks of the potential so-called “Ethereum killers”. LUNA has been struggling recently because Terra’s latest upgrade, Columbus-5, effectively revamped its encryption system and made significant changes to its technology.
LUNA currently ranks fourth in terms of Total Value Locked (TVL) among other blockchains, demonstrating its growing popularity for decentralized financial (DeFi) applications and also as a platform for its long-term viability.
Terra is a first-tier blockchain developed by the Korean startup Terraform Labs and released in January 2018.
Terra has proven useful in real life, especially with traders. Arrington Capital, Lightspeed Venture Partners and Pantera Capital have committed around $ 150 million in funding for Terra-based projects.
Terras. movable parts
Terras is created with Cosmos and uses Tendermint’s authorized proof-of-stake consensus mechanism. This makes it possible to scale up to thousands of transactions per second with almost instant completion at much cheaper fees than Etheruem. Cosmos is used by other major projects such as Binance Chain, Crypto.com and Cosmos Hub.
According to Terras Analytics, Terra currently has 139 validators with a total of 341 million LUNA slots.
An important detail of the Terras blockchain is that it uses a dual token system in which Terras (LUNA) and TerraUSD (UST) are involved. LUNA serves as the utility token of the protocol, while UST is the native co-stable.
Tokenomics from LUNA ensures the stability of UST and other stablecoins. UST, on the other hand, is an algorithmic stablecoin that was introduced in September 2020. This means that UST does not need any centralized support or security, which avoids the dependence on real, central and other concentration problems.
This is in contrast to other stablecoins that are pegged to assets such as the US dollar, as the value of the UST against the greenback is maintained through the continuous burning of equivalent LUNA tokens. In other words, UST is produced when an equivalent amount of LUNA is burned.
For example, if the price of UST exceeds $ 1, the algorithm will burn more LUNA to mint the UST and return the value to $ 1. Conversely, if the price is lower than USD 1, the VAT will be exchanged for LUNA to increase the price.
Terras is building a strong foothold in the DeFi scene, with its entire ecosystem revolving around TerraUSD. Three large decentralized applications (DApps) are already using stablecoins, including Mirror, Chai and Anchor.
Mirror is a synthetic asset protocol that replicates the world’s stock markets and enables users to invest even when they do not have regular access to those markets. On the other hand, Chai is like an e-wallet for fast and cheap mobile payments in South Korea, but also plans to expand into other Asian countries like Singapore, Thailand and Taiwan. Finally, Anchor is a savings protocol that offers users UST-based fixed income investments. Anchor was launched in March but has quickly become a popular vehicle for high-yield farming, ranking third in TVL behind Aave and Compound.
Terra’s long-term value is based on LUNA’s utility and blockchain infrastructure. DApps in the Terras ecosystem are supposed to increase the demand for UST, reduce the supply of LUNA and make it more valuable in the long term.
In August 2021, the listing of Wrapped LUNA and TerraUSD on Coinbase Pro was considered one of the catalysts for its rally, as LUNA was only tradable on a handful of exchanges in the past.
Another catalyst was the anticipation of the Columbus 5 upgrade, which brought Terras significant changes that enabled greater scalability and greater cross-chain interoperability. LUNA’s price rose from less than $ 10 in July to around $ 41 on October 6, and its market cap is already above the $ 18 billion mark, ranking 11th according to Cointelegraph Markets Pro.
30. September The Columbus 5th upgrade should attract many new projects to Terras, which will put the LUNA-Coin under more deflationary pressure and make the case more bullish.
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Before the upgrade, burned LUNA tokens are moved to a community pool so that they can be reinvested to build other applications. This burned LUNA is called “seigniorage”, which essentially refers to the face value of newly issued coins minus their production costs. After the upgrade, these burned LUNA tokens will be burned forever, making LUNA less common.
Over the past three months, LUNA has seen a fairly constant flow of supply, although it has declined significantly since February 2021. At this point, LUNA’s total circulating supply is less than 400 million tokens (currently at least 400 million tokens). $ 17.6 billion) and an overall drop in supply of $ 81 million ($ 3.6 billion). The effects of the eternal burning of LUNA tokens will gradually be felt in the coming months.
The latest upgrade also improves Terra’s usability as it opens up to cross-chain assets in other Cosmos-integrated blockchains like Solana and Polkadot. This was made possible by the integration of Terra into the Stargate protocol from Cosmos. The Wormhole Bridge, which is also part of the Columbus 5 upgrade, is intended not only to open up more DApps in the Cosmos ecosystem, but also to reduce the friction of USTs relocating to Solana and move the asset coding quickly through strings.
Finally, another major overhaul is the LUNA staking productivity increase, one of the reasons for the TVL increase. Taking all these factors into account, the LUNA token price has outperformed expectations. This is because of how the value of the LUNA token is related to the development of the Terra blockchain. Since DApps generate more VAT demand on the Terra blockchain, this also reduces the supply of LUNA and makes it more valuable for the owners.
However, this coin also has two sides, and that is all the more telling in the midst of the bitter race for first-class blockchains. On the other hand, this is the scenario where there is no sustainable demand for Terra and its stablecoins, which would be problematic for long-term LUNA holders.
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