Terra is a blockchain project, more specifically a stablecoin that is intended to reduce the volatility endemic to cryptocurrencies like Bitcoin. It is developed by Terraform Labs, the group that powers the startup’s cryptocurrencies and financial apps.
These cryptocurrencies include the Terra U.S. Dollar, or UST. It is pegged to the U.S. dollar through an algorithm. While other stablecoins such as Tether are pegged to more conventional currencies like through cash and cash equivalents as opposed to an algorithm and associated reserve token.
Luna, another digital token and reserve asset, is burned to mint new UST tokens. Once the demand rises and as more people use the currency, more Luna will be automatically burned and diverted to a community pool. That process somehow helps stabilize the price.
Therefore, if you buy something— say, a meal at McDonald’s —using UST, that transaction will generate a fee that similar to a credit card transaction. And just like stock dividends, that fee goes to people who own Luna tokens.
Why it’s catching on
Terra blockchain transactions often take seconds to finish. Also, the cost of transaction fees when interacting with smart contracts is considerably lower than, say, the gas fees on Ethereum. This makes Terra an appealing substitute for developers seeking smart-contract-enabled blockchains.
It also makes Terra easier to spend, and the price of UST could remain above a dollar. This assumed risk is one of the many reasons people are looking at LUNA and UST as one of the brighter futures of crypto.
Its partner, Chai, boasts a payment system has 2 million users and processes $1 billion in transactions each year according to Terra’s website. A report from RBF Capital suggests that Terra’s stablecoins could achieve 20% market share by 2025.
Terra has a lot going for it, especially considering its experienced leadership team, a clear whitepaper, and several big backers. Another advantage is that it can communicate with several different blockchains and is a programmable ecosystem in its own right. It’s no wonder LUNA’s price has risen over 2,000% since the start of this year.
The future of Terra Crypto
Compared to bigger cryptocurrencies like Ethereum, Terra still has a long way to go. Financial transactions involving Terra-related cryptocurrencies are from Korea, the home country of its founders. Thanks to rising interest in its partner Chai, Terra is becoming more popular in Korea. However it’s too early to say whether Terra-related currencies will gain have the same popularity in other countries.
Messari’s Watkins says that Terra’s blockchain runs on a “limited number of nodes”. This means that the computers that help keep the system running help reduce latency that may otherwise slow processing of financial transactions.
For most people, Terra is not worth it because it is less “decentralized” than other blockchain platforms. It is powered by thousands of interconnected computing nodes worldwide. For blockchain purists, that’s a point in the cons column.