Everything To Know About Terra (LUNA) Blockchain

What is Terra LUNA?

Terra LUNA

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Terra is a blockchain project developed by Terraform Labs that powers the startup’s cryptocurrencies and financial apps. These cryptocurrencies include the Terra U.S. Dollar, or UST, that is pegged to the U.S. dollar through an algorithm.

Terra is a stablecoin that is intended to reduce the volatility endemic to cryptocurrencies like Bitcoin. Some stablecoins, like Tether, are pegged to more conventional currencies, like the U.S. dollar, through cash and cash equivalents as opposed to an algorithm and associated reserve token.

To mint new UST tokens, a percentage of another digital token and reserve asset, Luna, is “burned.” If the demand for UST rises with more people using the currency, more Luna will be automatically burned and diverted to a community pool. That balancing act is supposed to help stabilize the price, to a degree.

“Luna directly benefits from the economic growth of the Terra economy, and it suffers from contractions of the Terra coin,” Terraform Labs CEO Do Kwon said.

Each time someone buys something—like an ice cream—using UST, that transaction generates a fee, similar to a credit card transaction. That fee is then distributed to people who own Luna tokens, similar to a stock dividend.

How Does the Terra Blockchain Work?

The Terra Blockchain was created using the Cosmos software development kit (SDK) and utilizes the Tendermint Proof-of-Stake (PoS) consensus mechanism. The Cosmos SDK was designed to enable developers to build and launch interoperable blockchain applications quickly and efficiently. Terra has a cap of 100 validators across the network, which means that it is more centralized than many other PoS-based blockchains.

Transactions on the Terra blockchain take seconds to settle. Furthermore, the cost of transaction fees when interacting with smart contracts is considerably lower than the gas fees on Ethereum. This makes it an appealing alternative for developers seeking smart-contract-enabled blockchains.

Protocols Built on the Terra Blockchain

Mirror Protocol

One of the decentralized applications (dApps) using the TerraUSD stablecoin is Mirror Protocol. The platform creates the opportunity to mint fungible “synthetics” that track real-world asset prices in real-time. This can then facilitate synthetic stock trading, allowing exposure to stocks without actually holding any shares. Mirror synthetics have been designed to encourage bringing real-world assets onto the blockchain, intended to be used as key components in smart contract applications. 

Mirror Protocol has been created on both Terra and CosmWasm, using TerraUSD as the base asset. Minting Mirror synthetic assets (mAsset) requires Mirror Protocol users to lock up 150% of the mAsset value in TerraUSD as collateral. Collateral will be liquidated if the price of the mAsset rises above a collateralization threshold. 

Prices of Mirror assets (mAssets) are determined through oracles, providing real-world asset price feeds every 30 seconds. Users are able to trade mAssets through the Terraswap exchange. The Mirror protocol is governed by holders of the native MIR token. MIR tokens have been fairly distributed through liquidity mining, with no pre-sale or team allocation. By joining the Mirror Protocol community, users can have a voice on important updates to the protocol through holding MIR tokens. 

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Anchor Protocol

Launched in early March 2021, Another successful Terra-hosted decentralized application (dApp) is Anchor Protocol. The Anchor savings protocol is targeting non-crypto-natives to give them the chance to use a decentralized finance (DeFi) savings product that is simple and easy to use. Anchor Protocol offers a vast array of staking products with individual risk/reward ratios. 

The Anchor Protocol savings infrastructure has some key features to ensure secure stable returns on Terra deposits. This includes the “Principal protection”. In short, the Principal protection is a liquidation protocol that automatically liquidates collateral positions when a loan is at risk. An additional feature of Anchor Protocol is the capability of instant withdrawals with no lock-up period required. 

Anchor Protocol offers users a stable interest rate for depositing their Terra assets. The yield generated from Anchor is “powered by block rewards of major Proof-of-Stake (PoS) blockchains”. This is achieved through Anchor Protocol lending out deposits to borrowers who “put down liquid-staked PoS assets from major blockchains as collateral”.  

The Anchor Rate provides the stable interest rate target for depositors. The Anchor Rate is calculated as an average of yields earned by borrowers “weighted by the collateral value backing of each yield”. Anchor Protocol uses a stabilization algorithm implementing smart contracts to increase or decrease the deposit rate, depending upon the amount of network activity and block rewards. This is how the deposit rate closely relates to the Anchor Rate, creating a stable return on deposits.

Anchor Protocol aims to increase the facilities and availability for anyone to make a stable passive income on the blockchain.

Alice Finance

Lastly, yet to be implemented on the Terra blockchain, is a mysterious project referred to as ‘Alice’. There is little known information about this project, garnering the crypto community’s attention with curiosity. Alice Finance was discovered through its Twitter account, encouraging the anonymity of the project. The last tweet published was in February stating “Lots of questions about who Alice is…let’s break it down. Alice is superior user experience, for superior financial primitives, built on the most adopted blockchain”.

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