Terra (Luna) has shown a huge rise in a few days. In just three days, it rose more than 50% from $50 to $80. As a result, Terra, which was ranked 9th in terms of cryptocurrency market capitalization, rose to 7th place, surpassing Solana and Cardano.
This move is very impressive as no other cryptocurrency has experienced this much upward pressure over the same period. Only Terra is rising significantly.
What is Terra🌎?
This is an explanation for those who do not know what Terra is. If you already understand Terra, you can skip this.
Terra is a commonly known layer 1 blockchain such as Ethereum, BNB Chain, and Solana. The biggest feature is that it is a blockchain based on the algorithmic stable coin system.
What is a stablecoin?
A stablecoin, as the name suggests, refers to a stable coin. One of the things that makes the coin unusable in real life is high volatility. Therefore, many people view cryptocurrency as an asset rather than as a currency. So what came out to solve this problem is a stable coin such as Tether (USD), which has the same value as the dollar. If you have used it at an overseas cryptocurrency exchange, you have definitely used it at least once.
Fiat-collateralized stablecoin
Fiat-collateralized stablecoins refer to coins issued by companies using customer fiat currency (e.g. USD) as collateral. The problem that arises when issuing stable coins this way is whether the issuer is trustworthy. Since around 2018, Tether has been suspected of issuing Tether for more dollars than it actually has, and this issue is still not resolved.
Algorithmic Stable Coin
The way to solve the problem caused by the uncertainty of fiat-collateralized stablecoins is to issue stablecoins transparently through blockchain. However, developing an algorithm that keeps the price of a coin stable through decentralization is not an easy task.
The Rise of Terra
Terra implemented an algorithmic stable coin by operating with two types of coins: Terra, a stable coin, and Luna, which supports it. Terra (UST) is recognized in the cryptocurrency market and ranks 4th in market cap (1st among algorithmic stable coins) following Tether, Circle, and Binance USD.
- Terra: A stablecoin that tracks each country’s fiat currency.
- UST (USD Terra) that tracks the value of the dollar and KRT (KRW Terra) that corresponds to the won, etc.
- Luna: A coin used on the Terra blockchain and helps Terra to be stable.
- Ticker is
$Luna
- Ticker is
How prices are maintained
Terra and Luna can be exchanged with each other, and during this process, the coins being exchanged are burned and the coins being exchanged are minted. In other words, you can either Burn Luna to issue Terra or Burn Terra to issue Luna. During this process, the price of Terra will converge to the value of fiat.
For example, even if the price of Terra plummets, it will remain constant due to people trying to make profit by burning Terra and issuing Luna. Conversely, if the price of Terra soars, it will remain constant due to people making profit by burning Luna.
Luna🌕 Perspective on the reason for the rise
I believe the increased availability of Terra(UST) is driving Luna incineration, which is currently driving Luna’s price increase. I think the bottom has been proven through the recent private token sale.
Demand for stablecoins increases due to global crisis
The international situation is engulfed in uncertainty due to the recent Ukraine-Russia incident. On the day Russia invaded Ukraine, the Russian stock market plunged close to -40%, and in Ukraine, local people are purchasing Tether, a stablecoin, at a 10% premium due to the government’s restrictions on cash withdrawals.
All of these phenomena can be interpreted as a movement to evacuate to safe assets. Because the dollar is recognized globally as the safest among fiat currencies, the dollar exchange rate is rising even domestically.
We must not forget that our country is also in conflict with North Korea. Obviously, when a crisis occurs in Korea, the value of the dollar against the won may rise. Therefore, I think we should also include the dollar in our asset portfolio.
Meanwhile, stable coins linked to the dollar will continue to be in demand. While fiat-collateralized stable coins are not free from state sanctions, Terra (UST) is attractive in that it cannot be controlled by the state because it is a stable coin issued on a decentralized system.
Anchor protocol deposits increase amid bear market
Anchor Protocol is Terra’s Savings DeFi service, which allows you to earn interest equivalent to annual 19.5% just by depositing UST equivalent to dollars.
The price of Luna has been falling for some time due to Anchor’s inability to provide interest to users. However, as TFL(Terraform Labs), the developer of Terra, recently resolved the issue directly, there is no longer a case where interest will not be paid for the time being. It is no exaggeration to say that it has become almost the only refuge where you can consistently generate high profits during a falling market.
In fact, so much money is flowing in that the anchor’s value change over the course of a month is close to 46%.
Looking at chain TVL, Ethereum’s TVL has risen to Terra's TVL is 10% while it has fallen by 50%. Through this, we can see that funds are flowing out of Ethereum and flowing into Terra during the same period.
TVL (Total Value Locked): Total funds flowing into the DeFi ecosystem
Terra DeFi usage growth, including Anchor Protocol, is also leading to an increase in Terra usage, causing Luna burning, and it is believed this is also causing Luna’s price rise.
Ecosystem expansion
Join the Cosmos Network
Terra’s ecosystem has been rapidly expanding since the recent Columbus-5 mainnet update. With this update, it was incorporated into Cosmos Network and connected to other projects using the Cosmos SDK. Recently, the native coin swap service ThorChain ($Rune) also announced a connection with Terra. As a result, the possibility of Terra (UST) being used as a key currency within the Cosmos ecosystem is increasing.
Launching various services
It is no exaggeration to say that until now Terra’s only dApp was the Anchor and Mirror protocols. Through these two services, we have built a strong DeFi ecosystem based on algorithmic stable coins.
Now it is time to expand the area to various services (NFTs, metaverse, P2E etc), which can be done as a Layer 1 blockchain. There are a number of projects already in development or being launched.
If you are curious about Terra’s projects, it would be a good idea to refer to Coin 100 Year Jangtu’s blog.
In particular, the metaverse service Terra World in the Terra ecosystem is currently undergoing a land sale, and in the case of Com2uS, Terra has announced that it will issue its own token C2X for P2E. For C2X, what is expected is that TFL will be the direct backer.
LFG’s Private Token Sale
LFG (Luna Foundation Guard) recently attracted investment equivalent to $1B (10 billion dollars) through a private token sale. It was revealed that the funds will be used as foreign exchange reserves to strengthen UST’s pegging mechanism through Terra’s ecosystem and assets with low correlation (e.g., Bitcoin).
LFG (Luna Foundation Guard): A non-profit organization that allocates funds to support the growth and development of the Terra ecosystem.
The amount of $1B was more than KRW 1 trillion and was enough of a token sale to shock the public. The buying rating of institutional investors is about $51 and the fact that it is locked up for 4 years and cannot be sold means that the bottom has likely been reached around $50.
summary
- Terra is a Layer-1 blockchain based on a stablecoin.
- As Terra usage increases, Luna burns occur, which naturally leads to price appreciation.
- The use of Terra is increasing for the following reasons.
- The demand for stablecoins increases amid the unstable international situation
- Increase in Anchor Protocol deposits during bear markets
- Luna ecosystem expansion after Columbus-5 update
- LFG’s private token sale has already proven the bottom
- Luna’s Rice Cake Gazua