Tanya Sharma
    Tanya Sharma

    Updated on January 26, 2023 09:48 AM

    Published on November 11, 2022 11:11 AM

    Built with the help of the Cosmos SDK, Terra is a blockchain network that focuses on producing stablecoins.

    Source: Blockchain Info

    What is Terra?

    Terraform Labs, a 2018 firm formed by Do Kwon and Daniel Shin, developed the Terra ecosystem. The algorithmic stablecoin Terra is an open-source blockchain payment platform for cryptocurrencies that automatically follow the value of other assets or currencies. Stablecoins backed by money are available from Terra to increase the reliability of cross-border transactions. 

    One of the two primary cryptocurrency tokens supported by this system is called Terra, whereas the other is called LUNA. While LUNA is used for blockchain governance, Terra stablecoins follow the value of fiat currencies like the U.S. dollar and euro.

    The Terra blockchain's history

    Do Kwon and Daniel Shin started Terra in 2018. As we already know, Kwon and Shin created Terra in order to give consumers the security of fiat money while utilizing blockchain technology to make settlements quicker and less expensive than with conventional payment methods. These alternatives, according to the two creators, would boost blockchain acceptance.

    Terra is backed by the Terra Alliance. A global coalition of e-commerce companies and platforms called the Terra Alliance is promoting the use of Terra. The aggregate value of the enterprises in the Terra Alliance is in the tens of billions, and there are more than 45 million consumers among them.

    Token Economics in Terra

    As mentioned above, there are two different kinds of tokens in the Terra ecosystem: LUNA and a wide family of Terra Stablecoins. The native coin for governance, mining rewards, absorbing volatility, and transaction costs are called LUNA.

    In order to mine Terra stablecoins, miners stake LUNA, according to the protocol's Delegated Proof of Stake (DPoS) process. The most important and potent fiat currencies in the world are tied to Terra stablecoins. The package contains currencies that are tied to the USD, EUR, CNY, JPY, GBP, KRW, etc. Through user voting, the network will gradually add new currencies.

    How does Terra function?

    The Terra protocol functions as a distributed ledger that is updated by network validators. When validators vote on blocks using the DPoS algorithm, they are rewarded with LUNA tokens. By taking part in the PoS consensus mechanism, Terra miners contribute significantly to security. They also aid in price stabilization by absorbing demand fluctuation that occurs temporarily.

    As a result, the network ensures stability by rewarding miners with a fluctuating money supply. Every time prices vary slightly, Terra exerts pressure to bring them back to normal. Terra's supply is continually being added to or taken away by the LUNA pool and Terra pool. 

    Terra is mined by burning LUNA, and vice versa. The procedure provides consistent incentives for both contractions and expansions. So abiding by the straightforward law of supply and demand.

    What is the Delegated Proof of Stake consensus process in Terra?

    The Cosmos SDK was used to create the Terra blockchain, therefore Tendermint DPoS was an obvious choice. The consensus method, which is a component of the Cosmos technology stack, is a less harmful substitute for Proof of Work.

    When it comes to processing transactions as of October 2021, Terra employs a team of up to 130 validators. A validator is backed by users, also known as delegators. The validator, in turn, protects the network by processing transactions in a manner akin to a Bitcoin miner. A delegator will bet their LUNA tokens on a validator they think will handle network transactions honestly and efficiently. The custom proportion of the incentives that each validator will provide to their delegators may also be specified.

    A specific quantity of LUNA must also be locked up by validators for a minimum of 21 days. The act of connecting is what causes this. If the validator is a scam, delegations are subject to a 21-day lockup period and run the danger of losing their share.

    Where to buy Terra tokens?

    Many centralized and decentralized exchanges (DEXs) offer Terra for sale, including Binance, Osmosis, KuCoin, and Kraken. 

    Terra Station: What is it?

    Holders of LUNA may access their assets, stake their coins, and take part in governance using Terra Station, the official Terra cryptocurrency wallet and dashboard. Since your private keys are not kept by Terra Station, only you have access to them. Make sure to save your seed phrase in a safe location if you open a Terra Station wallet. You can't get your money back if you lose it.

    A variety of on-chain metrics, including transaction volume, staking returns, and the number of active accounts, are shown on the Terra Station dashboard.

    Not to mention, this platform's staking tokens area enables delegation, rewards verification, bonding LUNA as a validator, and participation in all phases of the DPoS consensus process.

    The massive Terra collapse

    Terra has been establishing its reputation as a pioneer in the stablecoin industry over the last few years. Late in 2020, Terra introduced TerraUSD, its own algorithmic stablecoin (UST). The value of this stablecoin was intended to remain constant at $1. The currency, however, immediately lost the steadiness it was supposed to have and collapsed drastically in the mid of 2022.

    Terra has been establishing its reputation as the industry leader in stablecoins over the last few years. Late in 2020, Terra introduced TerraUSD (UST), its own algorithmic stablecoin. The value of this stablecoin was intended to remain constant at $1. However, the coin swiftly lost the intended level of stability and began to fall sharply around the middle of 2022.

    What was assumed to have happened was Terra Classic USD $UST was extensively sold out. There were a few sizable $UST withdrawals on the Terra environment in May 2022. These withdrawals raised the supply and decreased the price of $UST. Investors panicked and started selling as the price of the $UST fell. As $UST was sold, $LUNA was created, and the value of the token sharply decreased. In order to keep the price of $UST stable, Terraform Luna was continuously generated; nonetheless, both tokens eventually collapsed.

    The Terra Luna disaster rocked the cryptocurrency market; many investors lost their whole life savings, and there were allegations that some investors were suicidal and fleeing from the acquaintances they had persuaded to invest in $LUNA. In a matter of days, investors watched their money go from hundreds of dollars to a few pennies.

    Originally valued at over $40 billion, Terra Luna has now lost investors' confidence and value. The US Securities and Exchange Commission launched its own inquiry into the situation after more than 2000 investors filed a class action complaint against Do Kwon.

    The fall had a negative impact on the cryptocurrency sector as a whole, which lost investors and over $400 billion in market capitalization. Later, Do Kwon of Terraform Labs said that the accusations made against him by South Korean authorities were inaccurate and politically biased. The government even claimed he was vanished from the nation, but Kwon disputes their assertions, claiming he is not on the run and making "zero effort to hide."

    Terra's future

    Future Terra users will have several chances to benefit from its cross-chain connectivity with other Cosmos SDK blockchains.

    There is space for Terra to expand and enhance its user base outside of Asia because the stablecoin subject is significant internationally in terms of legislation and mainstream usage in payment systems. Members of the community are rewarded for holding Terra and LUNA tokens and participating in the Terra ecosystem, as stated in the Terra whitepaper.

    As a result, Terra's adoption and community are expanding astonishingly quickly. To support the Terra ecosystem and provide users with DeFi tools for trading, spending, and conserving money, a number of flagship apps have been released.