What is Terra Luna?

At its core, the Terra Luna Ecosystem is an open-source blockchain payment platform that provides users with the capability to:

  • Use stablecoins that are pegged to fiat currencies, offering price stability and faster settlement times

  • Streamline global payment systems

  • Foster the widespread adoption of blockchain technology

The brainchild of Do Kwon and Daniel Shin, Terra was developed with the objective of achieving these goals.

The Terra ecosystem encompasses a variety of components, including the Terra blockchain, the native Luna token, and an array of stablecoins such as the TerraUSD (UST). Together, these elements form a cohesive network, aiming to provide a stable, efficient, and transparent platform for users to transact with digital assets.

Terra Blockchain

Terra is an open-source blockchain payment platform that facilitates the use of stablecoins pegged to fiat currencies, providing users with efficient price stability and faster settlements. Terra Classic, the original version of the Terra blockchain, utilized fiat-pegged stablecoins to build a price-stable global payments system. The Terra Alliance, an international collective of e-commerce businesses and platforms, was formed to promote the adoption of Terra and advocate for the utilization of blockchain technology.

To maintain the equilibrium of Terra stablecoins, the network incentivizes users to burn Terra and mint Luna. This process increases Terra’s price by reducing its supply and decreasing Luna’s price by increasing its supply. By striking a delicate balance between these forces, the Terra blockchain strives to offer a stable and secure platform for users to transact with digital assets.

Luna Token

Luna, the original Luna token of the Terra ecosystem, has a significant function within the platform. It is employed for governance, mining, and mitigating the price volatility of Terra stablecoins, ensuring a stable and secure environment for users. The luna price is determined by market demand and supply, making it an integral component of the Terra ecosystem.

Luna holders can receive staking rewards by stakingtheir tokens on cryptocurrency exchanges such as Bybit. Also, Luna’s function extends to supporting the UST stablecoin, as it was designed to uphold UST’s price through arbitrage. This mechanism allows for the creation of additional Luna tokens to bolster the price of UST if it declines below $1, and the destruction of Luna tokens if UST increases above $1.

Terra Stablecoins

Terra stablecoins are digital assets designed to track the value of fiat currencies, providing users with a stable store of value. Terra currently offers stablecoins pegged to:

  • USD

  • Korean Won

  • Mongolian Tugrik

  • Special Drawing Rights basket by September 2021

Further options of fiat currency, including the South Korean won, will be made available in the near future.

To ensure the stability of its stablecoins, Terra employs a combination of token minting and burning, as well as incentivizing arbitrage. Arbitrageurs contribute to the stability of the UST price by selling Luna for UST when the price of UST is below $1 and buying Luna when UST is worth more than $1. Through these mechanisms, Terra aims to maintain a stable and secure environment for users to transact with digital assets.

The Evolution of Terra: From Classic to 2.0

The transition from Terra Classic to Terra 2.0 was marked by a series of unfortunate events, including the unprecedented unstaking of UST and a malicious attack on the Terra ecosystem. These incidents, along with the collapse of UST and LUNA, led to a loss of confidence in the Terra ecosystem and a pressing need for regeneration. In response to these challenges, Do Kwon proposed Terra 2.0, a new iteration of the platform designed to restore trust and confidence in the Terra ecosystem.

Terra 2.0, built on Cosmos, is another proof-of-stake blockchain, serving as a re-engineered version of Terra Classic, excluding the contentious UST stablecoin. This new chain aims to regain the confidence of investors while addressing the issues that plagued its predecessor. With a focus on developing a more secure and robust platform, Terra 2.0 represents a hopeful step forward for the Terra ecosystem.

The Collapse of UST and LUNA

In May 2022, the crypto market experienced a sharp downturn, which had a devastating impact on UST and LUNA. Here are the details:

  • UST lost its peg to the U.S. dollar.

  • LUNA’s arbitrage mechanism, designed to support UST, failed to maintain the stablecoin’s value.

  • As a result, both tokens spiraled into a collapse.

  • LUNA’s value plummeted from around $84 to $0.00009592.

  • UST’s value decreased from $1 to $0.02.

The collapse of UST and LUNA had a profound impact on investor trust in the Terra ecosystem. Those who had faith in the stability of UST and its peg to the U.S. dollar found themselves questioning the reliability of the token and the Terra protocol as a whole. This loss of confidence not only affected Terra but also made investors more cautious of other stablecoins, such as Tether USDT.

Introducing Terra 2.0

To rescue the Terra ecosystem and regain investor trust, Do Kwon suggested Terra 2.0, a rejuvenation strategy targeted to resolve the problems causing the downfall of UST and LUNA. This new iteration of Terra involves forking the blockchain, creating a new chain with its own data and history separate from the original Terra blockchain. By establishing a distinct platform, Terra 2.0 aims to learn from the mistakes of its predecessors and build a more secure and reliable ecosystem.

Terra 2.0 proposes new governance plans, involving the establishment of a fresh Terra chain and the forking of Terra’s governance coin Luna, leading to community ownership of the chain. These plans involve the distribution of the new Luna token in an effort to incentivize developers, increase user activity, and ultimately revive the Luna ecosystem. With Terra 2.0, the hope is that the platform can regain the trust of its users and continue its mission to revolutionize the world of stablecoins.

The Airdrop and Recovery Efforts

As part of Terra 2.0’s recovery efforts, an airdrop of new LUNA 2.0 tokens was initiated to compensate investors who were impacted by the collapse of UST and LUNA. Thirty percent of the LUNA airdrop was allocated to those who held UST or LUNA prior to May 7, 2022. This distribution aimed to restore trust in the Terra ecosystem and demonstrate the project’s commitment to its investors.

Beyond the airdrop, Terra 2.0’s recovery initiatives included:

  • Reinstating the dollar peg for UST

  • The Luna Foundation Guard deployed billions of dollars worth of Bitcoin reserves to maintain the UST pegged to the dollar

  • Terra itself purchased $2 billion worth of UST to reestablish the peg following its collapse

Through these measures, Terra 2.0 sought to rebuild confidence in the ecosystem and pave the way for a brighter future.$LUNA $LUNC #TopCoinsJune2024 #FIT21 #bitcoin #Metaverse