Last Friday, the major cryptocurrencies began to fall in price suddenly and dragged down the rest of the digital assets. For example, Bitcoin, the crypto with the highest value fell 17%; and other currencies such as Binance Coin, Solana, Cardano and XRP lost around 20% of their value.
In this context, there was a cryptocurrency that resisted the downward trend, thanks to its governance and “tokenomics”. This is Luna, the native token of the Terra blockchain that was launched on the market in 2019.
Amid the slump, Luna gave its investors 30% gains and hit a new all-time high of $72. At the beginning of August, the crypto was worth below $12 and already gave 500% gains to its investors in a matter of months.
Behind these increases, there is a hidden reason: the creators of the project developed asystem of “burning” digital assetsto prevent their price from falling. Next, what is the Terra blockchain, how the system that stabilizes the value of the Luna cryptocurrency works, and what is its projection.
What does “tokenomics” mean and why is it important to analyze it?
The word “tokenomics” refers to the study of the digital economy of cryptocurrencies.
All crypto projects have behind them factors that impact the demand and supply of a cryptocurrency,such as distribution, issuance, production, quality, among others.
These aspects are essential since investors can analyze the performance of a digital asset in the medium and long term; and know what the degree of adoption of said asset will be.
Two other indicators that crypto investors closely follow are the market capitalization and trading volume ofa cryptocurrency, which show the circulating supply and total demand.
On the other hand, each of the projects has behind it a foundational statement, a kind of “roadmap” that details who created that cryptocurrency, who invested in the project, what is the value proposition, who does the audit of the blockchain blocks (which are public), in which digital exchange houses they are listed, among other variables.
It is important that all investors soak up all this information before investing their capital.
What is Terra, Luna and UST?
The Terra blockchain was created by a South Korean firm called “Terra Labs” with the aim of creating a better digital financial system outside of financial institutions and fintechs.
Creators and founders of Terra Labs
With this blockchain, they created a decentralized payments application called “Chai”, which is used today in South Korea to buy and sell physical items.
In addition, they created Mirror, a decentralized finance protocol that serves to create “tokenized corporate shares”; and Anchor Protocol, another decentralized protocol in which investors allocate capital and generate returns of up to 20% per year.
In all the aforementioned financial services, the queen is “Luna”, the official cryptocurrency of the Terra ecosystem, which trades at around US$ 70.
But it’s not the only cryptocurrency on the Terra blockchain: there are also stablecoins that always hold the same value of $1 and are not volatile.
At present, the most popular crypto dollar of the project is TerraUSD (better known by its acronym UST); and is followed by other stablecoins such as TerraSDR (SDT), TerraKRW (KRT) and TerraMNT (MNT).
All these cryptocurrencies and Terra’s protocols are decentralized, that is, they do not depend on any government or traditional financial entity; therefore, you do not have to ask for any permission to move capital on the blockchain.
Finally, the commissions (called “gas”) for operating on Terra, in addition, are low, compared to other networks such as Ethereum.
Terra Tokenomics: Everything You Need to Know
When the crypto market suffers a crash, investors have several options: not to sell a penny of their portfolio and endure the decline; continue to buy stablecoins paired one by one with the dollar to invest them in other volatile assets and take advantage of their low price; or sell all your investments out of “fear” that it will continue to fall.
In the case of the holders of luna tokens, they decided to take refuge in the project’s stablecoin, called UST. It is a crypto dollar paired one by one with the US dollar that always maintains its value.
When investors invested their Luna tokens in the UST cryptocurrency, the project’s developers began burning Luna in order to reduce supply and working capital.
With this “burning” of assets, they managed to stabilize and raise the price of the cryptocurrency. For this reason, it was the only asset to rise in price amid the sudden drop.
In addition, as the protocol burns Luna cryptocurrencies, the UST stablecoin will maintain its stability and one-to-one parity with the US dollar.
“Terra has an offer of 1 billion tokens. If this number is exceeded, Luna burns until it returns to the balanced level of supply. The new Luna tokens are mined through the protocol’s algorithm, as needed, to maintain the price of Terra’s stablecoins,” explains Coinmarketcap.
To date, the protocol has burned around US $ 4,000 million in Luna and, according to the same source, the circulating supply is around 383,509,658 digital currencies.
Terra’s next steps
DoKwon, CEO of Terraform Labs, the company that developed the Terra blockchain, announced via Twitter that he “got tired” of arguing on Twitter about “whether UST can be stable” amid a crypto market slump.
“I will propose to create multi-million dollar reserves in decentralized assets (such as Bitcoin and others) in an attempt to save me time,” he said.
At the moment, the CEO did not make any more announcements on the issue at hand and in the event that it becomes a reality, the UST crypto dollar will have reserves in other digital assets to maintain its stability in a scenario of negative returns.
Originally posted 2022-05-04 09:06:47.