Terra’s stablecoins derive value from its native token, LUNA

Bitcoin and Crypto Market Watch Monday, November 08, 2021 - 19:03

Stablecoins – cryptocurrencies pegged to a fiat currency such as the US dollar – are a growing breed of cryptocurrencies that facilitate transactions within the crypto universe. They are necessary for transfer of value with certainty in terms of fiat conversion. In the last 24 hours, more than 75% of all transactional volume in the cryptocurrency market has been derived through stablecoins. In this article, we try to understand one such protocol.

Terra: Fundamentals & Purpose

Cryptocurrencies are known for their volatile nature which might be a roadblock towards their adoption as a medium of exchange. The problems grow when transactions are not instantaneous.

The Terra Protocol was made to solve these issues, with the core idea being that a cryptocurrency would maintain a stable price with an elastic monetary policy while also retaining all the censorship-resistant nature of Bitcoin. Terra’s suite of stablecoins include US pegged TerraUSD (UST) and three other coins pegged to the Euro, Canadian Dollar and Japanese Yen.

Terra differs from Tether, the largest stablecoin network, in that the stablecoins issued by Terra is backed by its native token LUNA while Tether’s stablecoin USDT is backed by non-cryptocurrency deposits in banks etc. That is, instead of using over-collateralized crypto or fiat as reserves, UST’s price is stabilized by exchanging with LUNA via an algorithm.

Terra (LUNA) Fundamentals

LUNA, Terra’s native token, allows its holders to pay network fees, stake in the TDPS (Tendermint Delegated Proof of Stake) consensus mechanism, participate in governance, and peg stablecoins.

LUNA has a total supply of 968 million out of which more than 399 million are already in circulation. It currently ranks among the top 15 cryptocurrencies in the world with a price tag of $51 per token, with more than $20 billion market capitalization.

LUNA started this year with a price tag of less than $0.7 per token and hit an all-time high of $52.99 last week, which is a substantial 75x in 11 months.

Short term technical analysis

Terra Analysis

Source: TradingView, Binance

LUNA is currently on an uptrend and on the path to new all-time-highs. A fibonacci pull from its September low to recent high indicates support at $46.1 and $41.7. It has already bounced off the more solid support lines at the $33-34 range, giving it good fuel for the current run. Its most recent resistances remain at the recent highs of $52.5 and $53.3. Beyond this, it is the fibonacci extensions that come into play, although they remain well above, giving LUNA the potential for significant upside in the near term.

Future Potential

Terra is looking to become the leading e-commerce stablecoin payment and DeFi (Decentralized Finance) service provider globally, with its unique proposition of contributing to the acceleration of blockchain in the Asian and Korean markets while also focusing on a global scale use.

Terra’s cost-effective model, quick settlements, combined with low fees for product purchases, incentivize consumers and merchants to use the platform. It is turning out to be one of the most promising cryptocurrencies and blockchain platforms. It is estimated that 20% of stablecoin share will be from Terra by 2025 up from around 1% today.

LUNA, naturally, has tremendous potential to grow further in the next couple of years with the token hitting price discovery mode already.

Disclaimer:This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.