What Was Terra (LUNA)? How Did it Work?

Please note Terra (LUNA) is no longer traded on most exchanges. It is now a failed crypto project. This article was written before it crashed. It is being kept for reference purposes only.

Terra LUNA is an innovative blockchain project focused on payment processing and the expansion of its ecosystem. Terra blockchain fuses decentralized stablecoins and its native token LUNA.

Terra was created by Terraform Labs – which was founded in 2018 by Daniel Shin and Do Kwon. Investors in the project include Coinbase Ventures, HTX Capital, and Pantera Capital.

How Terra LUNA Works

Terra blockchain is comprised of terra stablecoins and LUNA coin which is the native token of the protocol – basically, the token used to operate and engage with DApps in the Terra ecosystem.

There are various terra stablecoins, including TerraUSD (UST – most popular terra stablecoin), TerraCNY, TerraJPY, TerraKRW, and TerraSDR which are all used in a multitude of global marketplaces.

Terra stablecoins function like fiat currencies would, only unlike physical cash, terra stablecoins operate on a blockchain network.

Terra relies on collateralizing mechanisms to maintain the integrity and stability of the terra protocol. Terra stablecoins and its native LUNA coin work synchronously to keep the network optimal.

Essentially, the stablecoins and the native LUNA coins are continuously minted (created new) or burned (removed from the supply) according to supply and demand.

Terra stablecoins price stability is achieved by using the same mechanism world central banks use – increasing and decreasing the money supply. This mechanism ensures that the stablecoins, although decentralized, stay pegged. This is necessary to uphold the effectiveness and solidarity of the network.

What Is Terra Used For?

Terra has a vast list of partners that use its stablecoins for retail payments. These stablecoins act as secure digital decentralized fiat currencies that are built to maintain price stability, unlike the volatility present with most digital assets.

Terra stablecoins offer a quick, reliable, and secure way for users to send cash cross-border almost instantaneously and for incredibly low fees.

The stability and affordable transaction fees when sending stablecoins make it ideal for processing payments. The native LUNA coin on the other hand is used to ensure the price stability of these stablecoins by operating the collateralizing mechanisms that keep these stablecoins price anchored.

This means that the supply of LUNA coins fluctuates according to the requirements of Terra’s collateralization mechanism. LUNA is also integral in the validation of transactions and can also be staked (vested for a period of time). Users stake LUNA coins to receive passive income.

It’s important to consider that the LUNA token is a volatile cryptocurrency with a fluctuating supply, its price action is driven by the value being added to the terra ecosystem.

Terra Station acts as the portal for customers and merchants and the terra station wallet provides access for users to make payments, stake LUNA, and interact with DApps within the terra ecosystem.

Simply put, merchants can seamlessly facilitate payments and settlements by integrating Terra Station with their point-of-sale via APIs. It’s an incredibly lucrative, efficient, and affordable way to process payments and can be used as a mobile and digital wallet.

Where To Buy Terra (LUNA)?

Now that you know how terra works and what it’s used for, let’s discuss where you can purchase terra stablecoins and its native token, LUNA.

UST and LUNA are the most commonly available tokens. They can be purchased on several centralized crypto exchanges. Before you’re able to purchase, you’ll need to deposit funds on the crypto exchange and purchase the tokens by placing an order.

These crypto exchanges are the safest place where you can buy, sell and store terra stablecoins and its native token, LUNA.

Five of the most popular crypto exchanges are:

1. Coinbase
2. Crypto.com
3. Kraken
4. Gemini
5. Coinmama

All of the above exchanges allow users to buy, sell, transfer and store either UST or LUNA in a digital wallet, on the exchange. You can simply use your debit or credit card to purchase UST or LUNA. It’s advisable to purchase the stablecoin and then use that to purchase LUNA, to reduce the effects of volatile price movements.

If you want to use the terra ecosystem, you need to first create a terra wallet. Next, you’ll need to send your LUNA from the exchange you purchased it on, to your unique terra wallet.

Interacting with DApps in the terra ecosystem is only possible if the user has LUNA in their terra wallet.

How long has Terra existed?

Terra was created by Terraform labs in 2018. The founders of Terraform labs are Daniel Shin and Do Kwon.

Do Kwon is a Korean national who graduated from Stanford University. He’s a prominent figure in the crypto space and is known for his innovative thinking and business expertise. His partner and co-founder of Terra, Daniel Shin, is known as a visionary and is a key figure in e-commerce.

Terra has partnered with more than 25 e-commerce partners which facilitate more than $50 billion in transaction volume annually.

Terra created the mobile payment app, CHAI, which is now being used extensively in Korea and has garnered over 400,000 users. The terra stablecoin, TerraKRW is used to execute payments and settlements instantaneously and with minimal transaction fees.

Terra network’s native token, LUNA, has also seen comprehensive growth since its launch on cryptocurrency exchanges in July 2019.

LUNA experienced a low of $0.12 on March 18, 2020, before sequentially rising to an all-time high of $106 in March 2022 (900x increase).

The terra ecosystem has also continued to grow in value, reaching a total value locked (TVL) of nearly $30 billion in March 2022.

LUNA has maintained a position in the top 10 list of biggest cryptocurrencies by market capitalization.

What’s controversial about Terra LUNA?

When it comes to cryptocurrencies there is always speculation and controversy. Terra LUNA has also been surrounded by controversy. Let’s take a look at 3 of the top controversies surrounding Terra LUNA.

1. Algorithmic Stablecoins Are Notorious For Failing – Over recent years many “algorithmic stablecoins” have seen their demise and quite rapidly too. Terra stablecoins have therefore come under a fair amount of scrutiny. Most notably, after the UST price crashed by 15% to $0.85 on December 30, 2020. This raised many questions and concerns within the terra community.
2. SEC Subpoena – The SEC launched an investigation into Mirror protocol, a DeFi platform in the Terra ecosystem, that allows individuals to create and trade “mAssets“. These mAssets mirror the price of stocks and Terraform labs are subsequently in hot water. As of February 2021, Terraform labs have been ordered to comply with the SEC subpoenas.
3. Wonderland QuadrigaCX Scandal – LUNA token fell by more than 50% amidst the Wonderland crypto scandal. Wonderland collapsed after it was reported that Michael Patryn, a convicted financial felon who orchestrated the QuadrigaCX Canadian exchange scam, was in charge of the Wonderland treasury.This sparked fury and doubt in the community which lead to the price of Wonderland ($TIME) falling by more than 90%. LUNA token crashed because UST was prominent in the Wonderland project – users could stake UST to receive Magic Internet Money ($MIM) as a reward.

How many Terra LUNA are there?

At the time of writing, TerraUSD (UST) has a circulating supply of 16.17 billion.

Terra LUNA has a circulating supply of 356.43 million. It has a total supply of 754 million.

The supply of both UST and LUNA fluctuates according to supply and demand.

Can Terra be mined?

Terra stablecoins and the native token, LUNA can’t be mined. The consensus algorithm (rules that determine how a blockchain network is controlled and how coins are created) is Proof-of-Stake which makes it more environmentally friendly (no electricity used to mine).

Only Proof-of-work coins like Bitcoin can be mined.

What is the market cap of Terra LUNA & TerraUSD (UST)?

The market cap of TerraUSD (UST) is:

Market cap = total amount of coins in circulation x $1

UST = 16,170,000,000 x $1 = $16.17Bn

The market cap of LUNA is:

Market cap = total amount of coins in circulation x current market price

LUNA = 16,170,000,000 x $1 = $16.17Bn

The market cap fluctuates according to circulating supply and market price.

Biggest Competitors Of Terra LUNA

When considering the ‘competitors’ of Terra LUNA, you need to recognize projects that have similarities and aim to serve the same purpose and functions as Terra LUNA.

Terra LUNA’s main competitors are Ethereum (ETH), Solana (SOL), and Avalanche (AVAX).

All of the projects have strong ecosystems with multiple DeFi projects being deployed on them frequently. Each project has a strong community that frequently interacts within the ecosystem.

These projects have partnered with formidable companies and all of them have top-tier investors that continuously help them advance.

Terra LUNA however has a collateralized mechanism that separates it from its competitors. It has also partnered with e-commerce giants that process more than $50 billion annually using terra stable coins.

What are the future plans for Terra?

The terra ecosystem currently has less than 20% of the total amount of DApps when compared to Ethereum. However, this has been achieved in a fraction of the time. Terra’s ecosystem has been growing rapidly and has attracted nearly $30 billion in total value locked (TVL) by investors.

Its native payment processing app, CHAI is currently being used by more than 400,000 users and is being integrated on some of the largest platforms in Korea.

Daniel Shin and Do Kwon have confirmed that they are looking to grow the ecosystem with valuable projects with real-life use cases. They’ve made it evident that terra aims to grow substantially in Korea and globally.

Pros and Cons of LUNA: Terra Protocol, Terra Network & Terra Ecosystem

Pros

• Collateralized Mechanism – Terra blockchain network uses a unique collateralized mechanism, similar to world central banks, that regulates the supply and demand of its tokens. This ensures that terra stablecoins remain pegged and incentivizes validators to maintain network integrity and burn LUNA when necessary.
• Can Stake LUNA On Terra Station Wallet – Users can buy LUNA tokens on exchanges, send them to their terra station wallets and earn APY once they’ve staked their LUNA.
• Very Low Transaction Fees – The smart mechanism that terra uses to operate makes it ideal for payment processing. Its decentralized stable coins are pegged, transactions are almost instantaneous and fees are very low. Many merchants already use the terra network and more than $50 billion in transaction volume occurs annually.
• Ecosystem Is Growing Rapidly – There are only a few DApps in the terra ecosystem but it already has the 4th largest TVL at nearly $30 billion. Luna coins are required to interact with DApps in the ecosystem and there is evidence of rapid, continuous growth.
• Influential Partners & Investors – Terra has attracted the likes of Binance, HTX, Coinbase Ventures, and Pantera Capital. The strength of these partnerships has resulted in accelerated growth for terra and quite possibly indicates comprehensive growth going forward.
• Exciting DeFi Projects – Mirror protocol and Anchor protocol have driven a lot of investors to terra. The continued success of these DeFi projects encourages more developers to build on the terra network and deploy more projects, creating a more valuable ecosystem.

Cons

• Less Decentralized Than Other Blockchains – Terra has limited nodes and only 100 active validators keep the network running efficiently.
• Regulations / CBDC threat – Terra stablecoins are under threat if governments decide to impose strict rules on cryptocurrencies. Many governments are planning to release their own central bank digital currency, this will impose a major risk to terra stablecoins.
• Terra Adoption Is Slow – Currently, Asian markets are the biggest users of terra. Korea specifically has been the biggest adopter of terra, while this could be seen as positive it also indicates that the Asian market is the predominant target for terra’s stablecoins. Adoption in western counties that already have a good technological infrastructure needs to be prioritized for terra to continue its expansion.If Terraform Labs doesn’t prioritize western markets, competitors are likely going to gain and control the market share. This could be detrimental to the future of the project and could hinder further growth for Terra LUNA.

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