Wondering if Terra (LUNA) is dead? You can short the token on FTX, or buy it on Gemini!
One of the major use cases for cryptocurrency are stablecoins. These tokens are pegged to an underlying asset, such as USD. Terra is a decentralized global payment system that specializes in stablecoin transactions. While stablecoins could be extremely relevant in the future, many wonder if Terra can keep up with the competition.
Is Terra (LUNA) Here to Stay or Just a Fad?
Terra is a blockchain protocol that specializes in the use of fiat-pegged stablecoins to facilitate transactions on the blockchain. The team hopes that by using fiat-pegged assets, widespread adoption is more likely as there is far less volatility than with traditional cryptocurrencies.
Terra is powered by LUNA. Surprisingly, LUNA is not a stablecoin. In fact, it has appreciated nearly 500% in the past year, that is, until May 2022 when LUNA crashed over 90%. This is due to the depegging of UST to $1, which caused tremendous problems for the protocol.
LUNA is used to back UST, which is Terra’s native stablecoin. To do this, LUNA is burned when UST is in high demand, using a balancing algorithm that always keeps UST extremely close to $1.00. Unfortunately, this system didn’t hold up under bearish market conditions, and UST started trading for far less than $1. LUNA can also be used for staking, which provides liquidity to the protocol and is also used to keep the price of UST stable.
Due to Terra Luna being tied to the backing of UST, the token may not exist if UST can’t regain its peg. From the beginning of May 2022, LUNA has fallen nearly 100% in value, but this number could change at any time as the project hopes to regain its $1 peg..
Terra (LUNA) History
Terra was founded in January 2018 by Daniel Shin and Do Kwon, who are software engineers and entrepreneurs by trade. They saw an opportunity to bring stablecoins to the masses and drive crypto adoption.
Terra has established multiple partnerships, primarily with Asian companies. One such initiative was the Terra Alliance, which is a group of businesses that push for the adoption of stablecoin technology and use of the Terra protocol.
LUNA began trading in 2018 through an initial coin offering (ICO) and raised $32 million. Since then, the market capitalization grew to over $40 billion—much of which was lost due to the UST crisis.
Pros and Cons of Terra (LUNA)
Terra has pros and cons. It operates in a niche market and offers low transaction fees. Additionally, governments around the world have experimented with stablecoins, and Terra could help lead this charge. For cons, Terra faces stiff competition that can impact its liquidity and user base.
One major use case for crypto is stablecoins in government. In 2021, the French government conducted research on the use of stablecoins in their bond market and saw positive results. Since Terra operates in this market, it could be of use if more governments begin to experiment or implement stablecoin technologies.
Terra operates on the Cosmos network, which functions as both a pro and con. It is a good thing in that it allows for fast and cheap transactions. However, it also means that the project cannot interact with other chains, such as Ethereum. This factor can limit use cases and the overall trading volume of stablecoins on its network.
As of late, the largest con of Terra Luna is its inadequate stablecoin backing. Its stablecoin was algorithmically stabilized, as opposed to being 100% collateralized. This, paired with bearish market conditions and under collateralization, has caused both UST and LUNA to plummet in price.
Terra (LUNA) Competition
Terra faces daunting competition, primarily from Ethereum. Ethereum already has multiple stablecoins on its network. Specifically, USD Coin (USDC) is the most popular and has a market capitalization of more than three times that of Terra’s stablecoin (UST). Terra specializes in stablecoin transactions, but Ethereum has a much more popular stablecoin.
However, this specialization may benefit Terra in the long run. If stablecoins begin to obtain widespread adoption, then Terra will look more attractive to users as they are more specialized.
How to Make Money With Terra (LUNA)
As with any investment, the simplest way to profit is to buy low and sell high. However, it can be extremely difficult to time your trades in a way that allows you to do this consistently. Fortunately, there are multiple ways to earn LUNA through decentralized finance (DeFi) technology.
First, you can earn interest on your LUNA position through exchanges. You can earn up to 6% APY on your LUNA position by staking it on the popular cryptocurrency exchange, Crypto.com.
Another way to earn passive income on your LUNA position is to stake it. In doing so, you will contribute to the network and its proof of stake (PoS) consensus model. You can accomplish this action through the Terra website and can generate steady returns.
How to Buy Terra (LUNA)
Since Terra is a relatively large protocol, it can be bought on a variety of prominent exchanges, such as Coinbase Global Inc. (NASDAQ: COIN), FTX, Voyager and Gemini. These exchanges are known for their ease of use, low fees and overall security.
To open an account, register using an email and password. You will have to provide some basic personal information to verify your account. Then you can connect your bank account and begin trading.
Is Terra (LUNA) Here to Stay?
Terra is certainly an exciting project with a variety of real world applications that are already being explored. However, its future success is dependent on its competitors and the rate of stablecoin adoption. And with the UST depegging from $1, LUNA is in crisis mode. Its token may not return to all-time highs ever again, and the token has lost credibility among investors. While there’s a chance Terra Luna is here to stay, it’s much less likely now that its stablecoin is anything but stable.
However, investors should monitor the token and news outlets to see if it can regain its $1 peg—or if it can get close.
Frequently Asked Questions
Should you invest in stablecoins?
Stablecoins are a good investment if they can retain their $1 peg. Research these platforms to learn how they are backed and if they are a safe investment for you.
Is Terra dead?
Terra is not necessarily dead, but it must do quite a bit of work to regain public trust—whether it can regain its $1 peg or not.
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About Caden Pok
Caden has been involved with crypto since 2018, when he began investing, trading, and mining tokens. He took part in undergraduate research studying cryptoeconomics at the University of Michigan, where he will graduate Phi Beta Kappa with a bachelor’s in economics in 2025. He is experienced with DeFi technology and multiple blockchains, currently investing in Ethereum and Bitcoin.