What is Terra (LUNA) ,Working of LUNA

Terra is a blockchain network built using the Cosmos SDK focused on creating stablecoin. Instead of using fiat or highly encrypted crypto as a deposit, each Terra stablecoin is converted to a native network token, LUNA.

LUNA allows owners to pay network fees, participate in governance, participate in the Tendermint Delegated Proof of Stake consensus mechanism, and peg stablecoins. To identify stablecoin as a TerraUSD (UST), the USD value of LUNA is converted at 1: 1 with UST tokens. If the UST price, for example, is $ 0.98, arbitrageurs exchange US $ 1 for $ 1 USD and make 2 cents. This machine increases the demand for UST and also reduces its supply as UST is burned. Stablecoin then returns to its peg.

If the UST is more than $ 1, say at $ 1.02, arbitrageurs convert $ 1 of LUNA to 1 UST and make 2 cents. UST supply increases, and demand for UST decreases, returning the price. In addition to alleviating the instability of stablecoin, guarantors and shippers contact LUNA for rewards. The two actors play a key role in keeping the network secure and securing transactions.

You can purchase LUNA with Binance and store it, place it on a stake, and participate in the governance of Terra Station, the official wallet and dashboard of the Terra blockchain network.

Introduction

For lovers of stablecoin, there are now many options to choose from when choosing where to invest. And not all stablecoins are fiat-backed. There are a variety of methods and networks that try to keep stablecoins fixed. Terra is one such project that develops a unique approach to stablecoins and the tools developers can use to make their own tokens managed.

What did Terra do?

Terra is a blockchain that allows users to create stablecoins connected to fiat currencies. These coins use mainly the network holding method. The network was founded by Do Kwon and Daniel Shin of Terraform labs in 2018 and uses Tendermint Delegated-Proof-of-Stake (DPoS) as its component. Terra offers a smart contract capability to create a wide range of different types of stablecoin.

The project has proven to be popular in the Asian e-commerce market and has a large user base in South Korea. For example, Mongolian taxi users can pay other drivers in the stablecoin Terra MNT identified in the Mongolian tugrik. Locally-based tokens are known as Terra currencies and are located near the LUNA network token for governance and operations. Terra and LUNA have a harmonious relationship.

Terra already has stablecoins connected to the US Dollar, South Korean Won, and Euro, among others. In a short time, the project saw widespread popularity with stablecoins made on the platform. TerraUSD, as of this writing, has already reached the fourth largest stablecoin by market rate.

What are Terra stablecoins?

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tablecoins on the Terra network use a different method of maintaining price equity than fiat-backed stablecoins secured and crypto-backed stablecoins. Combined stablecoins usually allow the owner to exchange his stablecoin for an equal amount of fiat or a certain amount of crypto. Such is the case with BUSD, which holds savings in US dollars. The same is true of DAI, which is supported by over-integrated cryptocurrencies.

Terra stablecoins, however, use algorithmic methods to control their supply and pin retention. Each stablecoin, in fact, has a backup and is exchanged for domination and a LUNA token. Terra serves as a partner for anyone who wants to exchange their stablecoins on LUNA and vice versa, which affects the assets of the two tokens.

How does TerraUSD (UST) work?

Suppose you want to combine $ 100 for TerraUSD (UST), which is equivalent to 100 UST per pin. To merge UST, you will need to convert an equal amount of LUNA tokens. Terra will then burn the LUNA tokens you provide. Therefore, if the price of LUNA is $ 50 per coin, the algorithm will require you to burn 2 LUNA to add 100 UST. Previously, Terra burned only half of the tokens provided, but with the introduction of the Columbus-5 update, 100% burned.

You can also combine LUNA with Terra stablecoins. Making $ 100 for LUNA (2 LUNA) will require 100 UST burns. Even if the UST market price is not $ 1 per token, the diversion rate treats 1 UST as equivalent to $ 1. This exchange method is what gives the UST its price stability.

Let's take a look at an example to see how the algorithm works to try and keep the price stable:1. The price of 1 UST drops to $ 0.98, 2 cents less than the target price. However, for all exchanges between Terra stablecoins and LUNA, UST 1 is considered to be worth $ 1.

2. The arbitrageur recognizes this price difference and sees an opportunity to make a profit. They went on to buy 100 UST for $ 98 and then convert it to $ 100 for LUNA in the Terra Station Market Module.

3. The arbitrageur can save his $ 100 LUNA or convert it to fiat and withdraw his profits. While $ 2 may not sound like much, big profits can be made to a great extent. This difference between the price of making tokens and their value is known as seigniorage

But how does this end up stabilizing the price at $ 1? First, an increase in UST purchases by arbitrageurs increases the price of UST. In addition, Terra burns UST during the LUNA exchange, reduces its supply and contributes to UST price increases. If 1 UST reaches $ 1, the arbitrage option is closed.

The same procedure applies with a reversal where the UST price is more than $ 1. Let's look at another example.

1. The price of 1 UST goes up by $ 1.02, which also gives arbitrageurs a way to make a profit.

2. Arbitrageurs buy $ 100 for LUNA and convert it to $ 102 UST in the Terra Station Market Module. Terra burns LUNA and mint UST in this process, increasing supply.

3. Arbitrageurs can then sell that UST in the open market to hold a profit. This trading pressure on UST returns the price on the payroll.

The LUNA token is part of the Terra algorithmic coins as they draw the flexibility of the stablecoin demand. With its expandable monetary policy, LUNA carefully manages Terra's financial provision. Compared to over-integrated projects like MakerDAO, the Terra model is more risky and more affordable.

What is LUNA?

LUNA is a Terra cryptocurrency that plays four different roles in the Terra protocol:1. How to pay transaction fees on its gas system (state token).

2. How to participate in the platform governance. By setting aside your LUNA tokens, you can create and vote on suggestions for changes related to the Terra protocol.

3. How to absorb the flexibility of the need for stablecoins built in Terra to maintain price anchors.

4. Participation token in the DPoS compliance process after validators process the network transaction.

LUNA has the highest targeted offer of one billion tokens. If the network exceeds one billion LUNA, Terra will burn LUNA until its supply returns to normal level.

Prizes from LUNA

LUNA token holders can add their tokens to the Terra ecosystem compliant system. By setting up LUNA, users receive rewards taken directly from Terra protocol switch payments. Users pay these fees whenever they switch between LUNA and Terra stablecoin.

Prior to the Columbus-5 update, prizes were also taken from the signorage portion of each exchange. The new system should, in theory, give a maximum yield of about 7-9%. These awards provide inspiration to users and guarantors to participate in the Tendermint DPoS system. If you are familiar with mining in the Bitcoin network, the principle is the same.

What is Terra Station?<

Terra Station is an official Terra crypto wallet and dashboard that allows LUNA owners to access their funds, participate, and participate in governance. Available both as a mobile device application and as a browser extension.

1. The Terra Channel Dashboard displays a list of data in the chain, which includes transaction volume, refunds, and the number of active accounts.

2. The Terra Station wallet is not limited, which means you are the only one who can access your private keys. When opening a Terra Station bag, be sure to keep your seed stock in a safe and secure place. If you lose it, there is no way to get your money back.

3. The ruling website allows you to create new proposals and take them to the voting stage by entering 512 LUNA. Some users may replace you with 512 LUNA if you have no money. When a new proposal is being developed, some LUNA owners can submit their tokens to vote.

4. The key tokens category allows you to enable, evaluate your prizes, LUNA bond as a guarantor, and participate in all stages of the DPoS compliance process.

What is the Anchor Protocol (ANC)?

In addition to managing Terra, Terraform Labs also developed and maintained the Anchor Protocol, a leading blockchain application via TVL. The project is publicly owned and provides a platform for borrowing and lending to Terra users. With Anchor Protocol, you can earn interest, borrow, and lend crypto by making excessive securities. You can get the Anchor Protocol token, ANC, in many ways:

• You can apply for ANC-UST Terraswap LP tokens for ANC awards.

• You can hold the ANC alone.

• You can borrow stablecoins with Anchor Protocol.

• You can also use the ANC as part of the Anchor Protocol governance system to create and vote on proposals. You can buy the ANC from Binance using the same method described in LUNA above.

Closing thoughts

In the future, there will be more opportunities for Terra to take advantage of its cross-chain integration with other Cosmos SDK blockchains. As the title of stablecoin is important worldwide in terms of common control and acquisition of payment systems, there is room for Terra to grow and improve its user base outside of Asia.

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