Terra Blockchain in 2023: The Complete Beginner's Guide (2024)

Terra is a unique and innovative project that has the potential to revolutionize the way we think about money. Terra’s stablecoins offer a number of advantages over traditional fiat currencies and other cryptocurrencies, including stability, speed, low fees, borderlessness, and decentralization.

Terra is relevant to anyone who is interested in learning about stablecoins, decentralized finance (DeFi), or the future of money. Terra is also relevant to businesses and individuals who are looking for a fast, cheap, and secure way to send and receive payments.

What will you learn in this article?

In this article, you will learn about the following:

• What Terra is and why it is important
• How Terra works
• The different Terra applications
• The future of Terra

1. What is Terra?

Terra’s primary mission revolves around the concept of price stability, crafting digital money like digital dollars, which hold their value over time. Picture it as having digital cash that maintains a consistent worth, unlike other volatile cryptocurrencies. Terra utilizes smart rules to ensure the stability of its digital currency. Individuals and businesses can leverage Terra’s digital money for a myriad of applications and services, which function seamlessly due to Terra’s stable currency.

This digital currency system is incredibly reliable, with a core focus on price stability, enabling the creation of stablecoins, DeFi applications, and governance opportunities. It transforms cryptocurrencies into a practical choice for everyday use while reducing their inherent volatility.

1.1. A Glimpse into Terra’s Origins

Terra, established by Daniel Shin and Do Kwon in 2018, aimed to develop a blockchain platform that prioritizes price stability and fosters the widespread adoption of cryptocurrencies. They initiated an Initial Coin Offering (ICO) in August 2018, successfully raising substantial capital for their project. Terra officially commenced with the launch of its mainnet in April 2019, introducing its native token, Luna, and the stablecoin TerraSDR, now known as TerraUSD or UST.

Terra’s primary focus has been on building a stablecoin ecosystem, establishing partnerships with e-commerce platforms and applications to integrate Terra’s stablecoins. The year 2020 marked significant growth for Terra in the realm of decentralized finance (DeFi) apps built on its blockchain. In 2021, Terra achieved interoperability with other blockchains, facilitating seamless asset transfers between Terra and other blockchain networks.

The Terra Alliance, a consortium of e-commerce businesses and platforms from around the world, stands as Terra’s pillar of support. This alliance encompasses businesses with a combined value in the tens of billions and over 45 million users across the participating companies.

1.2. Unveiling Terra’s Stablecoin Ecosystem

Terra is a blockchain based ecosystem which has a stablecoin called TerraUSD (UST) and TerraKRW (KRT). It is designed to maintain a stable value, just like the traditional fiat currencies such as the US dollar. Initially, the value of UST was pegged to a target price, $1 USD. However, it lost its peg on May 9,2022.

• It achieves stability through algorithms and incentives and adjusts the supply of UST based on market demand. When UST trades above $1, the protocol incentivizes users to create more UST by providing rewards. When UST is below $1, incentives encourage users to burn UST, reducing its supply.
• It is backed by a chain of cryptocurrencies and assets which act as collateral.
• The blockchain is secured by validators who participate in governance decisions to propose and vote on changes.
• UST can be used for purposes like lending, borrowing, and trading.
• Terra is interoperable with other blockchains as it allows UST to be used in different blockchain systems.
• terraKRW tracks the South Korean won.
• Users mint new Terra by burning Luna.

So what happened to UST?

Both LUNA and UST crashed once UST lost its peg to the dollar. The stability of UST was derived from algorithms which linked the value to LUNA. The Luna crypto crash was due to its connection to TerraUSD (UST). In 2022, over $2 billion UST was unstaked and taken off the Anchor protocol, the lending and borrowing platform. It offered 20% yield to the ones who bought UST and lent it to the protocol. Hundreds of millions of UST were liquidated after the crash. It is believed that the crash dragged down the Bitcoin and the whole crypto market.

1.3. Terra Arbitrage

Terra’s algorithmic market module facilitates atomic swaps, allowing cryptocurrencies to be exchanged between different chains, such as Terra and Luna, and between different denominations of Terra stablecoins.

This module ensures a continuous supply of assets within the protocol, maintaining stable prices and transparent exchange rates. It enables users to trade $1 worth of Luna for 1 TerraUSD and vice versa, which results in burning $1 worth of Luna and minting 1 UST.

The arbitrage mechanism leads to a reduction in the UST pool, exerting upward pressure on the UST price until it returns to its $1 peg.

1.4. LUNA: The Powerhouse Token

Luna, the native token of the Terra blockchain, serves two primary purposes:

1. Stabilizing Prices: Luna is instrumental in maintaining the stability of Terra’s stablecoin. When the value of Terra’s stablecoin surges, Luna can be utilized to generate additional stablecoins.
2. Network Security: Luna plays a pivotal role in ensuring the security of the Terra system. Luna owners can employ it to vote for validators who uphold the system’s operations. In essence, it acts as a power source that sustains Terra’s stablecoins and facilitates the smooth operation of the blockchain.

LUNA Classic (LUNC) is the original Terra LUNA coin revamped after the UST/Luna collapse. The old chain was split into LUNA Classic and Terra chains. LUNC is the blockchain’s native token.

2. How Does Terra work?

Terra’s operations hinge on a proof-of-stake (PoS) mechanism for validating transactions on its blockchain.

• The network relies on a total of 130 validators to reach consensus. The weight of their voting rights is determined by the amount of LUNA 2.0 connected to each node.
• Rewards are generated through gas fees and a fixed yearly LUNA 2.0 inflation rate of 7%.
• Active participation in the consensus is enabled for LUNA 2.0 token holders.
• Validators occasionally stake their own tokens.
• A portion of the rewards generated is held as a commission by the validation node before being distributed to delegates.
• The level of incentives is intricately linked to the voting power of the validators.
• To engage in delegation, users often utilize the Terra Station interface for a streamlined process.

3. Terra upgrades

The historical Luna crash of 2022 has left many investors surrounded with fear. To overcome the same, Do Kwon introduced Terra 2.0 to restore the faith. The old chain was renamed as Terra Classic. However, the question arises that Terra Classic is the same as Terra Luna? Let us find out!

3.1. Terra LUNA Classic

Terra Classic represents the initial blockchain network of the Terra community, originating in 2018. At its zenith, this ecosystem held a valuation exceeding $40 million and featured two native tokens: Terra LUNA (now LUNC) and TerraUSD (now TerraClassicUSD). LUNA tokens played a crucial role in maintaining the stability of the UST stablecoin at a dollar peg. However, in May 2022, a substantial UST sell-off by a major player in the market led to a deviation from the $1 peg. This event triggered panic among investors, resulting in a loss of over 70% of its value as more UST flooded the market. A hyperinflationary spiral ensued, diminishing LUNA’s value from $80 to below a dollar and UST’s value to less than a cent. The Terra ecosystem faced an exodus of participants.

Do Kwon formulated a revival plan, ultimately giving rise to Terra 2.0.

3.2. Terra LUNA 2.0

The evolution of Terra 2.0, which unfolded on May 28, 2022, introduced enhanced functionalities and breathed new life into the old blockchain. The native token was rebranded as LUNA, and the blockchain operates in parallel with its predecessor, continuing to utilize the PoS mechanism.

4. Top Terra Applications

5. Terra Classic vs Terra LUNA

As in September,2023:

6. Is Terra LUNA 2.0 Safe?

Terra LUNA 2.0 represents the latest iteration of the Terra ecosystem following the tumultuous events of May 2022. Developers have already initiated several projects on this platform. However, it’s essential to acknowledge that the world of cryptocurrency is rife with volatility and uncertainty. The Terra community’s efforts to resurrect its previous system have garnered support from various Web3 projects.

We strongly recommend that individuals conduct thorough research before venturing into any cryptocurrency-related investments.

7. Future Analysis

Terra has its eyes on disrupting traditional banking via mass adoption of stablecoin cryptocurrencies and DeFi infrastructure. The winning streak has already begun with Terra powered CHAI, a payment app used by 25 million South Koreans.

Terra aims for a future where people buy and sell things by using digital currency stored in blockchain based mobile wallets. Terra also believes that it can reduce merchant transaction fees to 0.5% or lesser. Terra is the blockchain protocol for issuing algorithmic stablecoins pegged to a regional denomination, whereas Luna is the token used to stake,govern, and lock value in the Terra ecosystem. Terra is growing remarkably faster in terms of adoption. The DeFi apps like Anchor are boosting its growth!

Even a crash couldn’t affect the blockchain much. The restoration and rebuilding of the brand did wonders to the Terra ecosystem. It has a lot of good things stored in the future!

8. Final thoughts

Terra is a blockchain protocol that is shaping the future of money.

Imagine a world where you can send and receive money anywhere in the world instantly and for free. Where you can earn interest on your savings without having to go through a bank. And where you can invest in new and innovative projects without having to worry about inflation.

Terra is making this world a reality.

So if you’re looking for a new way to think about money, Terra is the place to start.

9. FAQs