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Why I am bullish on Terra (LUNA) for 2022

Terra is an open-source public blockchain protocol for algorithmic stablecoins.

Why I am bullish on Terra (LUNA) for 2022

1. Introduction to Terra

Terra is an open-source public blockchain protocol for algorithmic stablecoins. It enables the creation of fiat-pegged stablecoins that can be spent, saved, traded, or exchanged on the Terra blockchain.

Terra offers stablecoins pegged to:

  • US Dollar (USD)
  • Chinese Yuan (CNY)
  • Japanese Yen (JPY)
  • British Pound Sterling (GBP)
  • South Korean Won (KRW)
  • Euro (EUR)
  • IMF’s Special Drawing Rights (SDR)

Terra’s native token, LUNA, is used to stabilize the price of Terra stablecoins. LUNA is also a governance token as it enables holders to submit and vote on governance proposals.

The Terra economy basically has 2 pools — one for Terra Stablecoins and one for LUNA.

The price of Terra Stablecoins is maintained by the Terra algorithmic market module through Expansion and Contraction.

Expansion

When the price of a Terra Stablecoin is high in comparison to the pegged fiat currency it means that the supply is too low and the demand is too high. At this stage, the protocol incentivizes the burning of LUNA to mint Terra Stablecoins. This minting increases the supply of Terra Stablecoins and balances the supply with the demand.

Users keep minting Terra Stablecoins till the Stablecoin reaches its target price.

Contraction

When the price of a Terra Stablecoin is low in comparison to the pegged fiat currency it means that the supply is too high and the demand is too low. At this stage, the protocol incentivizes the burning of Terra Stablecoins to mint LUNA. This minting decreases the supply of Terra Stablecoins and balances the supply with the demand.

Users keep burning Terra Stablecoins till the Stablecoin reaches its target price.

2. Terra as a DeFi Blockchain

Terra is the second-largest Decentralised Finance (DeFi) blockchain with 26 active DeFi protocols and a Total Value Locked (TVL) of just over $29 billion. The most important DeFi protocols that run on Terra are:

  • Anchor (ANC) with a TVL of almost $15 billion
  • Lido (LDO) with a TVL of just over $8 billion

Why I am bullish on Terra (LUNA) for 2022


Why I am bullish on Terra (LUNA) for 2022 was originally published in Blockchain Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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