Cryptocurrency LUNA and stable coin UST are part of the Terra blockchain project, designed to be the basis of a global payment system. Through its Anchor Protocol and Mirror Protocol, the cryptocurrency project can act like a decentralized bank, offering higher returns and lower fees, and the upcoming Columbus-5 update will lead to greater efficiency and scarcity of the LUNA cryptocurrency.
Over the past years, the Defi sector has embarked on a path of growth by displacing traditional banks and eliminating intermediaries, offering users greater opportunities for benefit.
In DeFi, everything happens as follows: stable coins are used - coins pegged 1: 1 to another asset, usually the $US.
Most large stablecoins are centralized, which means that there is a registered entity that provides the stablecoin peg.
While this is a simple solution, it poses many challenges as the centralized company behind the stablecoin can control all money processes. This doesn't really differentiate DeFi from mainstream payment solutions. Terra and the UST stablecoin are battling this issue, and thanks to its rapid adoption.
What is Terra Blockchain
Terra was created by Do Kwon and the Korean company Terraform Labs. The Terra blockchain main net, released in April 2019, uses the LUNA token as its native cryptocurrency.
Terra resembles smart contract blockchains like Ethereum in that it allows smart contracts to be created and deployed on the Terra blockchain. However, it does have the UST stable coin. This distinguishes it from other projects.
UST is a decentralized algorithmic stable coin, meaning it does not have a 1:1 backing with the US dollar. Instead, the LUNA cryptocurrency is used as an algorithmic stabilization method.
Anybody can mint UST by burning their Luna. Therefore, burning $1 of LUNA will create $1 of UST. This also works in reverse, so $1 UST can be burned to create $1 LUNA.
This inseverable links the two coins together. The success of the LUNA cryptocurrency depends of the adoption of the UST.
The more UST minted, the more LUNA to be burned, which will reduce the supply and increase the price.
The mechanism with UST is very cool, it turns out conversion by the one hand, and burning on the other.
I would even say a key feature, creates a balance and gives the desired effect. Let's see how this project goes in the future.
Generally, Terra began to properly promote their network. Since it was not heard from before, and now they write everywhere that their token has shown huge growth.
The coins are built on the Cosmos ecosystem, a blockchain platform shared by Cosmos Hub, Cronos and Thorchain.
Unlike Ethereum, where all tokens are protected by proof-of-work mining from the main Ethereum chain, Cosmos protocols can be supported by independent miners depending on a specific application.
Since Cosmos, and therefore Terra, is a smart contract blockchain protocol, you can use Terra coins in any of the applications built on the basis of the protocol. You can use Terra coins in blockchains using the Terraform Labs mirror protocol, which provides stocks that reflect the prices of large American firms.
At the end of September 2021, Terra launched an update called Columbus-5. This added functionality for the Inter Blockchain Communication (IBC) protocol, which allowed Terra to become compatible with other blockchains.
Distinctive features include an insurance protocol called Ozone and UST support from the Wormhole V2 cross-blockchain bridge.
The future of the Terra protocol is, in fact, a discussion about the future of the stablecoins that underlie it.
Will centralized USD stablecoins become so ingrained in the US financial system (possibly through a central bank digital currency) that decentralized alternatives will go out of fashion?
Conversely, will decentralized stable coins move away from being pegged to the US dollar and be supported by the liquidity belonging to the protocol? Or will the arbitrageurs get tired of LUNA and bring down the prices of all stable coins within their protocols and send them to the cemetery?