Stablecoins are perhaps the heart of the DeFi ecosystem; however, recent scams where the Tether Foundation failed to prove that all their minted tokens are pegged to an equivalent amount of dollars in the chest have raised serious concerns from a user and investor’s perspective. As a result, the SEC has turned hawkish against stablecoin minting.
With that said, the DeFi ecosystem is ripe for innovating how stable coins can work and power the ecosystem. To dodge strict SEC measures and evoke true decentralization, algorithmic stable coins end up as an amenable choice and Terra Foundation has been working towards achieving that goal through its protocol.
What is Terra LUNA Crypto?
Terra is a truly decentralized financial blockchain with the vision to build a simple and powerful payment network. Founded by Terraform Labs in 2018, Terra aims to revolutionize the financial space by usurping the traditional financial system through the use of algorithmic stable coins. Algorithmic stable coins are much safer, inflation resilient and they can help those holding the tokens to earn higher interests when compared to the traditional banking system.
How the Terra Ecosystem Works?
At the heart of the Terra protocol lies the vision to make the financial system transparent, trustless, and profitable. But they can only happen when a customer’s purchasing power doesn’t diminish with time. To ensure that, the Luna Token works at two fronts: (i) Optimizing Purchasing Potential & (ii) Enabling Payment Simplicity
Optimising Purchasing Power
When you speak of optimizing the purchasing power, it would be hard to make that happen when stable coins are pegged to USD or to other fiat currencies. The reason being such fiat currencies lose value over time. So the best way is to collateralize such stable coins through a protocol. Terra introduces a circular dual token system built on top of arbitrage opportunities. The Terra ecosystem uses Seigniorage for that purpose.
To understand seigniorage, you can take this example. Suppose the cost of issuing an asset of $1 is $0.5, the difference of $.95 is the profit. The Terra ecosystem transfers profit to the seigniorage pool which stabilizes the token prices and funds the Terra ecosystem’s development by hedging the same against a basket of other currencies and assets along with the profits.
Instead of using a basket of other assets to drive price stability, the Terra ecosystem tweaks the demand and supply to establish stability. The rise in Luna prices mints more tokens, likewise, a fall in Luna price locks more tokens to the vault. IMF SDR standards define price stabilization.
Enabling Payment Simplicity
Payment systems could evolve on top of just being a gateway of the transaction between counterparties. To simplify that, the Terra Foundation has envisaged an automated behind the scene swapping mechanism. Using this system, not only payment will get simpler but even unused cash kept in the wallet can earn interest and help users earn money by simply storing the same in their wallet.
Can LUNA Reach $500?
Investors’ interest rise due to such use-cases. So let’s see whether we could see moonshots for Terra in the coming days.
Recently, a lot of activities from Delta Neutral Traders have stimulated the break out to $93 from $70. For example, these Delta Traders perform multiple hedging. Such a technique makes them immune to Delta exposure and allows them to enjoy upside, no matter what the market sentiments are. The recent price hikes are more likely due to such investors buying the spot LUNA and locking them in Astroport Lockdrop.
Once they are doing this, it is followed by opening a perpetual futures contract and Delta trading protects them from Delta stock volatility. In this way, such practices have led to a breakout. However, at the macro level, such price rises cannot be altogether invalidated. For the record;
Terra Luna has a Growing Ecosystem
It might be intriguing to know that Terra ecosystem is the 2nd largest blockchain powering up the DeFi market. Algorithmic stablecoins are the Magnus Opum of Terra Luna. UST has gained unprecedented popularity in 2021 and the same sentiments would be carried forward in 2022. Its other protocols like the Mirror, Anchor, and Pylon are on fire. It is most likely that UST might dominate the stable coin market and most of the protocols would be eager to open up UST/Native token pairs to accommodate safe cash-in and cash out.
Unparalleled Market Momentum
Market momentum has been something that has caused a lot of speculation for Luna in 2022. In 2021, Luna gave a 12,000% return and most of the investors see a mirror image of Ethereum in Luna. Having said that, all those who missed the boat to glory in Ethereum’s case would most likely catch up with Terra Luna. At the same time, one cannot rule out the next big halvening event due for 2024. If the much-anticipated breakout happens and BTC gets close to the $200,000 mark, we could most likely see Luna hovering around the $500 to $600 mark.
Where To Buy Terra Luna?
The following solid exchanges offer buying and selling LUNA token on their platforms:Can Terra Luna Reach $500 in 2022?