Terra’s UST brings more different inspiring to stablecoin technologies and demands.
If Terra is new to you here’s everything you need to know. Terra was founded in early 2018 by business entrepreneur Daniel Shin, and computer scientist Do Kwan.
Terra was built by Terraform Labs a software development company based in South Korea, which was incubated by a conglomerate of South Korean e-commerce companies known as the Terra Alliance.
Terraform Labs raised around 33 million dollars across various funding rounds in 2018, and the Terra mainnet went live in April 2019. In a sentence, Terra is an ecosystem of decentralized stablecoin tokens, which are collateralized by the LUNA coin, and the first Terra stablecoin was the KRW token for the Korean one
Terra’s KRW was integrated into the popular Chai mobile payments app in 2019 and is used by nearly 2.5 million people in South Korea. Today Terra offers more than a dozen decentralized stablecoins the most popular of which is UST for the U.S. dollar.
To mint UST or any other Terra stablecoin, an equivalent amount of LUNA must be burned. So, as a simple example if one LUNA is worth 10 U.S. dollars burning one LUNA would mint 10 UST.
Because UST can also be burned to mint an equivalent dollar amount of LUNA this creates the economic incentive necessary for UST to maintain its peg. If UST is trading at say a dollar 50 LUNA holders can burn their coins to mint UST and make a 50% profit. Eventually, this process brings the peg back down to a dollar due to the increased supply of UST.
Alternatively, if UST is trading at 50 cents, UST holders could burn their tokens to mint LUNA and make a 2x profit. This reduces the amount of UST in circulation restoring the one dollar peg. So, every time LUNA is burned to mint UST a small fee is taken and put into a community treasury to fund new Terra projects and protocols.
This ingenious system is made possible by Terra’s proof-of-stake blockchain, which was built using the Cosmos SDK. Terra’s blockchain can handle a few hundred transactions per second and it has 130 validators. These double as oracles that check the exchange rates between LUNA and Terra’s various stablecoins.Cosmos (ATOM): Why It’s a Crypto Gamechanger?Cosmos, ATOM’s out of this world. Here you see all details of why it’s a unique crypto project.medium.com
Though there is no minimum stake on Terra for validators. The staked amount of LUNA must be large enough to place in the top 130 validators by stake. Any delegated LUNA is counted towards this number. Staking rewards for both validators and delegators are currently just shy of 6% per year and any staked LUNA takes 21 days to withdraw.
Note that Terra does slash the LUNA stake of any misbehaving validators. LUNA had an initial supply of 1 billion which was allocated as follows 30% to Terraform Labs and its employees, 20% to the Terra Alliance, 26% to investors, 4% to exchanges for liquidity, and 20% for stability reserves in case of any crazy market volatility.
I should point out that Terra technically has a dynamic maximum supply of one billion. Basically, if there is less than one billion LUNA new LUNA are gradually minted and if there is more than one billion LUNA the excess supply is gradually burned. If you want to learn more about how Terra works you can read my previous post about the project.Terra LUNA, $50 In Pocket. $100 Possible?Terra ecosystem fixes fiat currencies by the growing ecosystem.medium.com
Terra Project Updates
Over the last few months, Terraform Labs investment arm has dished out millions of dollars to crypto projects looking to leverage Terra’s UST stablecoin. Terra’s stable savings protocol is called Anchor, and or Terra’s synthetic stock trading platform is called Mirror.
The first project to get some green was cash in March. Spelt with a K, Kash is a user-friendly front-end application that’s plugged into all three of Terra’s flagship protocols.
Another project to receive funding was loop finance in April whose Terra powered AMM DEX will be the back end to the loop wallet a food delivery app, which will allow users to pay using any Terra token.
Also in April, Spar Protocol got paid to create a decentralized hedge fund that allows so-called pool managers to invest Terra tokens on behalf of their clients in a trustless manner.
In may Terraform capital turned the spotlight on the Harpoon Protocol, which will develop a platform to make it possible for non-technical users to buy up any cheap collateral being liquidated on Anchor.
Less than a month later Pylon Protocol took the stage with its launch pad service which redirects Anchor savings yields to new projects building on Terra in exchange for their tokens among many other things. Read More...