Terra (LUNA) has recently joined the “I’d be really rich if I bought this alt-coin last year” club. This has led to a lot of people wondering if it is still possible to invest in the cryptocurrency and turn a profit at the current date.
The answer to that is, of course, yes. Cryptocurrency is currently in a bull market that has no end in sight, so from a big picture perspective altcoins look promising. But that is not much use for an actual investment because you need to know specifics about the project.
That’s where this article enters the picture. We will offer a brief overview of Terra so you can make an informed decision about whether or not you should invest into it.
What Is Terra (LUNA)?
Terra (LUNA) is a blockchain created by a company called Terraform Labs. Specifically, Terra has developed something called an algorithmic stablecoin. That means it is a cryptocurrency that aims to have a token equal to one fiat currency (1 USD = 1 Terra USD).
However, it is algorithmic, which means that it does this through buying and selling on the open market rather than having a reserve of the currency in a vault (ie. Tether).
Now, LUNA is not the actual stablecoin. LUNA is a governance token, which means that holders of it get to have a vote for project decisions if they choose to stake it. LUNA also serves as a way to regulate the price of the stablecoin.
Remember, algorithmic stablecoins require a decent amount of work in order to keep the peg at $1 USD. Terra accomplishes this by always allowing holders of LUNA to convert it for $1 stablecoins.
This is extremely useful when the price of the stablecoin rises above $1. For instance, if the price of USD Terra goes to $1.05, then LUNA holders can convert their tokens to USD Terra at a $1 price tag and turn a 5% profit.
The inverse is true when the price of the stablecoin falls under $1. Stablecoin holders are allowed to swap their stablecoins for LUNA, which will reduce supply of the stablecoins and drive the price back up.
Terra also regulates the price by requiring holders to burn the same dollar amount of LUNA when minting stablecoins. For instance, minting 500 UST requires one to burn 25 LUNA ($20/LUNA x 25 = 500 UST).
We really like this system because Terra can maintain a peg without requiring overcollateralization like other algorithmic stablecoins. The lack of overcollaterization makes Terra a very efficient stablecoin. It’s a different way to do things, but it has worked out very well for Terra.
So, that covers the basics of how the Terra stablecoin works. It gets even more interesting than that, though.
Terra is a Blockchain for Stablecoins
Terra is more than just an ERC-20 algorithmic stablecoin project.
No, Terra is a fully fledged layer 1 blockchain with its own nodes and validators. It’s a delegated proof of stake blockchain with 130 validators, which is not the best in terms of decentralization. It is very fast and has low fees as a tradeoff.
In fact, another use for LUNA tokens is staking them in order to collect a percentage of the transaction fees on the blockchain.
Terra being a layer 1 blockchain makes it much more appealing as an investment because it has a much larger potential for growth than other stablecoins stuck on Ethereum or other layer 1s.
So, Is Terra (LUNA) a Good Investment?
We believe that Terra is a good investment. The success of the project has shown that Terraform Labs knows what they are doing in regards to the project. The stablecoin has not collapsed like many algorithmic stablecoins.
Terra is actually much more scalable than other decentralized stablecoins that rely on overcollaterization like Ampleforth.
More importantly, Terraform Labs is launching more projects on Terra to create a whole decentralized finance ecosystem. Will it work?
It has already experienced some growth with DeFi protocols like Mirror (stock trading) and Anchor (savings).
We would certainly not sleep on LUNA. It could be worthwhile to throw money you can afford to lose at LUNA in the event that Terraform Labs continues launching more protocols on the blockchain. The stablecoin still has some room to grow, but we believe that the vast majority of the stablecoins growth has already occurred.
The future growth of LUNA is mostly dependent on the developers adding more protocols to the ecosystem and attracting more users to the blockchain.
Where to Buy Terra (LUNA)?
LUNA is not available on that many exchanges, which is surprising given its popularity. This is likely because centralized exchanges view LUNA with a little bit of disdain because it threatens the centralized exchange business model. There are also some regulatory concerns with algorithmic stablecoins like LUNA.
That said, you can still find LUNA on some exchanges. Binance, Kucoin, and Crypto.com. It’s just difficult to purchase it on a US based cryptocurrency exchange.
That sums it up for all you need to know about investing in LUNA. It’s a really interesting project that has seen tremendous growth over the past year. We believe that there is still some room for growth on the project because there are always more DeFi protocols that can launch on the blockchain.
The stablecoin itself is only the 5th most popular stablecoin. We know that might sound not very high, but you should view it as more of an opportunity and not a disadvantage.