What is Terra Luna? – The next Ethereum/Cardano Killer?

- 5 minute read

Ted Maas
Digital Marketeer
Ted Maas

Some would say that volatility is just a common part of cryptocurrency. Drops of twenty percent in 24 hours can happen in crypto, especially during a bear market. Perfect for day traders right? But this volatility is also an aspect that scares off a lot of people, as extreme volatility hurts the argument of crypto becoming legal tender. Terra, mostly known by the currency LUNA, wants to solve these issues.

what is terra luna?

What is Terra?

First, we need to make the distinction between Terra and LUNA. Terra is a variety of stablecoins that run on the Terra network. The Terra protocol is an open-source, Proof-of-Stake, blockchain that focuses on the stablecoins ecosystem. For those of you who don’t know, stablecoins are cryptocurrencies where the price is pegged to another fiat pair. These stablecoins are backed by other fiat currencies or metals like gold and silver. For example, one USDT = one dollar. These stablecoins provide stability in a volatile market.

UST coin

So Terra is a hub where all of these stablecoins are stored with the use of collaborating algorithms. Here, the stablecoins are named after their other fiat counterpart. For example, the US Dollar has a stablecoin on the blockchain called TerraUSD, the Euro is pegged to the TerraEUR and so forth. On the Terra network, all kinds of stablecoins can be traded seamlessly, cheaply, cross-border and instantly.

What is LUNA?

So now we explained what Terra does, but what exactly is the LUNA token? Terra is used for stablecoins, whereas LUNA is the native governance token that is used on the network itself. Between all the different Terra stablecoins, LUNA is used to operate all the collaborating mechanisms. These LUNA coins also back and secure the price stability of the Terra stablecoins. So where the Terra stablecoins provide stability, the LUNA token’s elasticity fluctuates when necessary.

In addition, LUNA is also used as a governance token, meaning that users of the Terra Luna network can issue these Terra stablecoins, pay transaction fees and stake their LUNA. By staking LUNA, you get a vote on network decisions and validate/secure the network at the same time. This is part of the Proof-of-Stake consensus algorithm.

“It’s growing at a very rapid rate …. We think it’s one of the most promising coins for the coming year, so many people are just starting to discover it and just starting to trade it.”
Dan Morehead
CEO Pantera Investing

Terra Luna, what to expect in 2022

The Terra protocol wants to function as a central bank for cryptocurrencies by offering stability. With the help of smart contracts and stablecoins algorithms, they have effectively built a hub where stablecoins, traditional currencies and volatile tokens can function as one hybrid mechanism.

The Terra Luna protocol is part of the growing world of DeFi, which is short for Decentralized Finance. DeFi offers financial instruments to trade cryptocurrency without the help of third parties such as exchanges, brokers or banks. The world of DeFi, and the smart contract technology behind it, is becoming increasingly more popular in the crypto scene. Did you know that in 2021, the total value locked (TVL) in DeFi was more than 100 billion dollars? Most of that value comes from the undisputed king of DeFi, Ethereum. But the second-highest TVL amount (over 20 billion) was locked in Terra Luna and its stablecoin protocol. Yes, the Terra Luna network had more value in DeFi than the Binance Smart Chain. Even more staggering is the fact that this was an increase of 42.000% compared to Terra’s TVL in December 2020 (42 million dollars).

Terra Luna wants to accelerate the use of blockchain technology in Korea and other Asian countries with their cross-border ecosystem. The potential of Terra Luna is, therefore, enormous. A platform where stablecoins (that are pegged to traditional currencies) can be swapped so seamlessly has the potential to become a leading service in the crypto economy. Lately, LUNA has been breaching its ATH of $90 as new investors are discovering the potential. As of today, LUNA is the current number 9 in terms of market cap with a total market cap of 34 billion dollars. LUNA has surpassed Polkadot according to data from CoinmarketCap and Coingecko. To put things in perspective, a year ago one LUNA token was worth less than 1 dollar.