Terra (LUNA) is an open-source blockchain payment network for algorithmic stablecoins that monitors the price of fiat currencies (a government-backed currency like USD) or other assets in a steady manner. Its mainnet was launched in April 2019.
The Terra crypto ecosystem powers retail transactions with minimal fees, rapid settlement, and frictionless cross-border exchange, all possible thanks to stablecoins.
Terra's developers, Daniel Shin and Do Kwon intended to build a coin with less volatile pricing than cryptocurrencies like Bitcoin while still having ample space for growth.
Terra's stablecoins establish price stability by utilizing Luna as collateral, similar to how fiat money used to do so by using an underlying asset like gold.
Let's take a look at some of Terra's main pros and cons.
Pros
- Terra Station (web extension that gives access to dApps powered by smart contracts on the Terra blockchain) has a highly efficient and easy-to-use user interface and mobile app, making it developer-friendly. The Terra SDKs make it simple to interact with a Terra node programmatically using popular programming languages (like Java and Python) to create apps.
- Due to its convenience and great demand, Terra caters to the stablecoin market. They are easy to utilize to avoid market volatility and protect one's investment. The value of UST, for example, is equal to USD 1 and should remain consistent thanks to the LUNA token. When the UST supply falls below USD 1, LUNA increases the supply to keep the UST pegged to the dollar.
- Terra Token offers interoperability as it works across many blockchains (like Ethereum and Solana), allowing users to seamlessly transfer assets from one network to the other.
- Terra uses Tendermint delegated Proof-of-stake (PoS) consensus, which allows fast transactions to be completed in six seconds and cost only a few cents. Validators set a minimum gas fee and reject transactions that do not conform. It prevents spamming.
- Terra has an active user base with real-world usage and has 100+ projects in its ecosystem. The Terra economy is a vibrant new home for the future of creative DeFi products, with millions of highly engaged users from various integrations such as CHAI and MemePay. Terra stablecoins, unlike many other stablecoin protocols, are directly integrated into payment methods, allowing them to be utilized for routine transactions such as grocery, movie tickets, transportation, and more.
Cons
- Terra only permits 130 active validators or block generators to keep the network running smoothly. Although it gives Terra an advantage in terms of transaction speed, it also renders Terra less decentralized than some other blockchain networks.
- CBDCs have already begun to be prepared by a number of countries throughout the world. Terra's stablecoins will be compromised if strict regulations against stablecoins are implemented. South Korea is already facing stringent crypto legislation due to concerns about centralization.
- Terra's stablecoin "UST" is not backed by anything. Its value is instead maintained by algorithms. In simple terms, they are not backed by 1:1 cash. This could be a huge problem if market sentiment regarding the currency takes a downturn. It might set off a negative feedback cycle, crashing the price of Luna and permanently depegging UST. The Iron Finance stablecoin fiasco is a great example to understand the risk.
- Terra's ultimate hurdle will be scaling internationally. It has already expanded its network to include Singapore and aims to continue to do so. However, there's plenty more to be done in this area.
Projects on Terra
Terra's overarching goal is to use stablecoins and DeFi technology to challenge traditional banking. Terra-powered CHAI, a payments app used by 2.5 million+ South Koreans, has already made significant progress in this area. CHAI allows its customers to send and receive payments via a variety of methods like debit, credit, PayPal, Payoneer, and so on. For Terra, CHAI offers a payment gateway with fiat merchants, allowing them to reach out to the public.
The Anchor Protocol, which is said to be Terra's answer to savings, was released in March 2021. It is easy to use and widely adopted (relative to the overall Terra userbase). Users can earn over 20% interest by staking stablecoins on Anchor.
Its user-friendly interface makes earning, borrowing, and even securing a job simple.
While most of the projects on Terra revolve around Payments (MemePay and Chai) and Savings (Anchor Protocol and Burst), one of the more recent Terra Blockchain projects is LoTerra. It's a lottery game platform that's completely decentralized and open-source.
The LoTerra ecosystem is managed by a Decentralized Autonomous Organization (DAO) that controls the game's policy through a voting mechanism based on several possibilities allowed by smart contracts.
Terra's objective is "Programmable Money for the Internet," making it developer-focused. You can write smart contracts in Go, Rust, or AssemblyScript by using the Terra network. Furthermore, Terra users may use the network's oracles to extend their dApp's functionality.
The Terra platform includes a developer platform and blockchain-agnostic architecture that enables developers to create their own protocols and decentralized applications on top of the Terra blockchain. Terra allows developers to connect dApp userbases to Terra's payment infrastructure and it is done in a permissionless and trustless manner.
Roadmap for The Future
While the launch of the Inter-Blockchain Communication (IBC) protocol and Wormhole compatibility for Terra approaches, the exact impact of the network's significant upgrade, called Columbus-5, remains unknown.
According to the blockchain's creators, the Terra ecosystem is on the verge of extraordinary expansion after Columbus-5 was successfully implemented in late September. They highlighted how the update, which has opened up endless possibilities for the ecosystem's development, is set to strengthen Terra's stablecoin use case while enhancing the native token's value.
Developers can formally submit proposals to the fund, which is believed to speed up the ecosystem's growth. Arrington Capital, Hashed, BlockTower Capital, Galaxy Digital, and Lightspeed Ventures are among the investors in Terra's US$150 million ecosystem fund.
Terra strives to establish itself as the world's premier online stablecoin payment and DeFi service provider. Terra's unique value proposition is speeding up blockchain adoption in the Asian markets.
At the same time, its primary applications have enormous worldwide potential. Businesses and customers are encouraged to utilize Terra because of the platform's discount model, fast settlement, and relatively cheap costs for goods transactions.
Terra will have many options in the future to make use of its cross-chain interoperability with other Cosmos SDK blockchains. Terra has room to grow and strengthen its user base outside of Korea, as the stablecoin subject is relevant internationally in terms of legislation and widespread use in payment systems.
Terra presently has a total value of US$17.15 billion locked up in the ecosystem's protocols. Terra's approach of creating an interoperable, user-friendly payment infrastructure may make it an appealing option for crypto novices, subject to the stablecoin space's still-growing list of dangers and drawbacks.