Terra Blockchain in 2023: The Complete Beginner’s Guide

Digital currency space is evolving, so is the technology! Let us consider Terra as a special kind of digital money having a specific technology behind it. It creates digital money , like digital dollars, which does not change in value too much, making it reliable. It is a blockchain platform for stability and mass adoption by utilising the benefits of cryptocurrencies and matching them with the stability of the fiat currencies. Let us know more about this wonder of technology!

What is Terra?

Terra focusses on price stability as it creates digital money, such as digital dollars, whose value doesn’t change much. It is like having digital cash whose worth remains the same, unlike other fluctuating cryptocurrencies. It uses computer rules to make sure that the price of its digital money stays stable. Individuals and companies might choose Terra’s digital money to make all sorts of apps and services. They work smoothly due to the stability of Terra’s money. It is a super reliable digital money system which aims at price stability, enabling the creation of stablecoins, DeFi applications, and giving governance opportunities. It makes cryptocurrencies more practical for daily use and reduces their volatility.

1.1. An overview

Terra was founded by Daniel Shin and Do Kwon in 2018. Their main motive was to create a blockchain platform which focuses on price stability and enables the mass adoption of the crypto. It conducted an Initial Coin Offering (ICO) to raise funds for its project in August 2018. They raised a worthwhile capital to support their development. The mainnet was launched in April 2019, marking its official beginning. The native token, Luna, and the stablecoin TerraSDR (now TerraUSD or UST) were introduced. 

It majored in building a stablecoin ecosystem by partnering with e-commerce platforms and apps to integrate Terra’s stablecoins. 2020 marked the year of significant growth for Terra in decentralized finance (DeFi) apps built on its blockchain. It achieved interoperability with other blockchains in 2021 by allowing the assets movement seamlessly between Terra and other blockchains. 

The Terra Alliance, a group of e-commerce businesses and platforms from around the world, backs Terra. Businesses within this alliance have a combined value worth tens of billions and 45 million plus users across the companies. 

1.2. All about Terra stablecoin

Terra is a blockchain based ecosystem which has a stablecoin called TerraUSD (UST) and TerraKRW (KRT). It is designed to maintain a stable value, just like the traditional fiat currencies such as the US dollar. Initially, the value of UST was pegged to a target price, $1 USD. However, it lost its peg on May 9,2022.

• It achieves stability through algorithms and incentives and adjusts the supply of UST based on market demand. When UST trades above $1, the protocol incentivizes users to create more UST by providing rewards. When UST is below $1, incentives encourage users to burn UST, reducing its supply. 
• It is backed by a chain of cryptocurrencies and assets which act as collateral. 
• The blockchain is secured by validators who participate in governance decisions to propose and vote on changes.
• UST can be used for purposes like lending, borrowing, and trading. 
• Terra is interoperable with other blockchains as it allows UST to be used in different blockchain systems.
• terraKRW tracks the South Korean won. 
• Users mint new Terra by burning Luna.

So what happened to UST?

Both LUNA and UST crashed once UST lost its peg to the dollar. The stability of UST was derived from algorithms which linked the value to LUNA. The Luna crypto crash was due to its connection to TerraUSD (UST). In 2022, over $2 billion UST was unstaked and taken off the Anchor protocol, the lending and borrowing platform. It offered 20% yield to the ones who bought UST and lent it to the protocol.  Hundreds of millions of UST were liquidated after the crash. It is believed that the crash dragged down the Bitcoin and the whole crypto market. 

1.3. Terra Arbitrage

• The Terra algorithmic market module allows atomic swaps, where crypto swaps between coins on different chains happen, like between Terra and Luna and between Terra stablecoin denominations.
• The module ensures that there is an all-time availability for the protocol’s assets, with stable prices and clear exchange rates.
• It helps users to trade $1 worth of Luna for 1 TerraUSD and vice versa. The swap results in burning $1 of Luna and minting 1 UST. 
• The arbitrage makes the UST pool shrink, generating an upward pressure on the UST price until it touches the $1 peg.

1.4. LUNA: The basics

Luna is the native token of the Terra blockchain. It has two main purposes:

• To help in keeping the price stable: When the Terra’s stablecoin value goes too high, people can use Luna to create more stablecoins.
• To help secure the network: Luna is used to make the Terra system secure. The Luna owners can use it to vote for the validators who keep the system working.

In short, it is like a battery which powers Terra’s stablecoins and makes them stable. It also makes sure that the blockchain operations run smoothly.

LUNA Classic (LUNC) is the original Terra LUNA coin revamped after the UST/Luna collapse. The old chain was split into LUNA Classic and Terra chains. LUNC is the blockchain’s native token.

How does Terra work?

To validate transactions on the Terra blockchain, a proof-of-stake (PoS) mechanism is used.

• A total of 130 validators work for the network consensus, with voting rights determined by the quantity of LUNA 2.0 connected to each node. 
• Gas fees and a 7% fixed yearly LUNA 2.0 inflation rate are used to create rewards.
• LUNA 2.0 token holders take part in consensus.
• Validators put up their own stake at times.
• Before awarding prizes to delegates, the validation node keeps a commission in the scheme.
• The incentives depend on the voting power of the validators.
• Delegation is usually done by using the Terra Station interface.

Terra upgrades

The historical Luna crash of 2022 has left many investors surrounded with fear. To overcome the same, Do Kwon introduced Terra 2.0 to restore the faith. The old chain was renamed as Terra Classic. However, the question arises that Terra Classic is the same as Terra Luna? Let us find out!

3.1. Terra LUNA Classic

Terra Classic is the original blockchain network of the Terra community, launched in 2018. The ecosystem was once thriving and valued more than $40 million, with its two native tokens, Terra LUNA (now LUNC) and TerraUSD (now TerraClassicUSD). LUNA tokens were minted and burned to keep the price of UST stablecoin to a dollar peg. In May 2022, a UST dump by a big whale in the market deviated the coin from its $1 peg. It lost over 70% of its value when  investors panic-released more UST in the market. There was a hyperinflation spiral which diminished the value of LUNA from $80 to below a dollar and UST below a cent. Everyone abandoned the Terra ecosystem. 

Do Kwon suggested a revival plan leading to the creation of Terra 2.0.

3.2. Terra LUNA 2.0

Improved functionalities and revival to the old blockchain gave birth to Terra 2.0 on May 28,2022. The native token was named as LUNA. the blockchain runs parallel to its old counterpart and uses the PoS mechanism. 

Terra Classic vs Terra LUNA

As in September,2023:

Is Terra LUNA 2.0 safe?

Terra LUNA 2.0 is the latest launch of the Terra ecosystem,after the May 2022 crash. Several developers have started to build projects on it already. It is crucial to note that crypto markets are highly volatile and uncertain. As the Terra community is working to revive its old system, many Web3 projects are supportive of that. 

We suggest everyone to research before investing in any project when it comes to cryptocurrency.

Future analysis

Terra has its eyes on disrupting traditional banking via mass adoption of stablecoin cryptocurrencies and DeFi infrastructure. The winning streak has already begun with Terra powered CHAI, a payment app used by 25 million South Koreans. 

Terra aims for a future where people buy and sell things by using digital currency stored in blockchain based mobile wallets. Terra also believes that it can reduce merchant transaction fees to 0.5% or lesser. Terra is the blockchain protocol for issuing algorithmic stablecoins pegged to a regional denomination, whereas Luna is the token used to stake,govern, and lock value in the Terra ecosystem. Terra is growing remarkably faster in terms of adoption. The DeFi apps like Anchor are boosting its growth!

Even a crash couldn’t affect the blockchain much. The restoration and rebuilding of the brand did wonders to the Terra ecosystem. It has a lot of good things stored in the future!

Final thoughts

After facing so much of rebranding and re-evaluation, Terra has reached here as one of the renowned names in the crypto world. With constant upgrades, it is going to do well in the crypto world.

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