Terra is a Cosmos-based protocol that powers a suite of algorithmic stablecoins designed to maintain their peg using a coin called LUNA. So what is Terra LUNA and how does LUNA work. If you do not know yet, this article will help you to understand those.
What is Terra LUNA?
LUNA is the native token of Terra, a blockchain developed by South Korean company Terraform Labs. A total of $32 million has been raised to fund this development through the private sale of LUNA coins. With Luna's circulating supply floating in the trillions, Luna's recovery remains a big issue. However, it will not deter users from buying the coin even after the price has dropped significantly.
How does LUNA work?
The Terra protocol acts as a distributed ledger, maintained by validators on the network. Validators work under the DPoS algorithm and vote on blocks, earning LUNA tokens as a reward. Terra miners play an important role in security by participating in the PoS consensus mechanism. Additionally, they help stabilize prices by absorbing short-term fluctuations in demand.
LUNA is Terra's native collateralized token designed to keep Terra's stablecoin offering (UST) stable. Luna absorbs the volatility of the UST ecosystem. In a nutshell, if demand for UST rises, more UST is created and LUNA is burned. If demand for UST falls, more LUNA is created and UST is destroyed. The actual mechanics of the burning and creation of tokens are not fully automatic as they involve artificial arbitrage of price differences.
In addition to its stablecoin offering, Terra also has a rapidly growing network of decentralized applications (dApps). There are currently over 100 dApps in the Terra ecosystem, each of which generates demand for Terra and $LUNA tokens.
So now you know about what is Terra LUNA and how does LUNA work. The future of the Terra protocol is actually a discussion about the future of the stablecoin that underpins it. Will centralized dollar stablecoins become so entrenched in the US?
