Peek behind the hood of the leading stablecoins-cryptocurrencies pegged to the price of another asset, most commonly the U.S. dollar-and things don’t look stable. Take Tether. Have a look at TerraUSD Coin Facts!!
A shady governance structure and the possibility of a New York Attorney General lawsuit and unannounced commercial paper holdings could give investors cause for concern.
Decentralized stablecoins attempt to circumvent these governance issues by keeping their pegs with algorithms rather than through huge reserves of cash and delinquent funds. TerraUSD, created by Terraform Labs, is one of these stablecoins. (It is also tied to various currencies around the world.)
It is tied with dollar U.S. dollar through a group of arbitrageurs who trade and buy Terra’s volatile cryptocurrency LUNA (also often called Terra), the seventh-largest cryptocurrency, in March 2022. LUNA has also been designated a governance token and allows holders to exercise voting rights on the protocols.
TerraUSD Coin Facts – Who invented Terra?
Terra ecosystem was created by Terra ecosystem was developed by a company known as Terraform Labs in 2018, established by Do Kwon and Daniel Shin.
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What is the process behind Terra’s operation?
To keep the stability of its stable coins, Terra mints burn tokens and encourages arbitrage. This is what it means:
Before you can purchase UST, it is necessary to create some. To do this, it is necessary to pay the price in LUNA. The procedure takes LUNA and then burns them, which restricts their supply and makes the cost of LUNA increase only a little. The same process is reversed when you want to mint LUNA and convert it into UST stable coins. They’re burned, and the cost of UST increases small.
What’s the reason you might want this? Alongside using the assets to provide a utility or service, it could also be an arbitrage opportunity. Arbitrageurs–traders who profit from small price discrepancies–help keep UST’s price in check by selling LUNA for UST when the price of UST is below $1 and buying LUNA when UST is worth more than $1. If, for instance, UST falls to $0.95 and traders decide to purchase a lot at the same price but then trade it in for $1 worth of LUNA. This way, UST supply is reduced and, consequently, the price increases.
What is the other thing that is unique in Terra?
The coins are built upon the Cosmos ecosystem, a blockchain framework used through Cosmos Hub Cronos and Thorchain. In contrast to Ethereum, which is a blockchain secured through proof-of-work mining on the Ethereum chain, the main Ethereum chain Cosmos blockchains can be secured by independent, application-specific miners.
Because Cosmos and, in turn, Terra is a smart contract blockchain protocol, you can use Terra coins with any application developed on the protocol. It is possible to use Terra coins across different blockchains using Terraform Labs’ Mirror Protocol which provides shares that reflect the prices of the largest U.S. firms.
In September 2021, Terra announced an update known as Columbus-5. It added features to the Inter Blockchain Communication (IBC) protocol, which enabled Terra to be interoperable with other cryptocurrency blockchains. Highlights include the insurance protocol Ozone and support for UST using the cross-blockchain bridge Wormhole V2.
Where to buy Terra (LUNA)?
It is possible to purchase Terra on a variety of centralized exchanges. The most popular marketplaces for LUNA are Binance, KuCoin, Huobi, and By bit.
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Future of Terra
The future of the Terra protocol is an issue of the next steps for the stablecoins that support the protocol. Can centralized U.S. dollar stablecoins become as ingrained in the U.S. financial system (perhaps by a central bank’s cryptocurrency) that decentralized alternatives are out of style?
In contrast, will decentralized stablecoins be able to move away from U.S. dollar pegs and be supported by the protocol’s liquidity? Or will arbitrageurs get bored of LUNA, slash the value of all stablecoins that are part of its protocols, and send them to the garbage together with Basis and the empty set dollars?