The project was first conceptualized in 2018, but it only went live on the mainnet in mid-2019. It has since grown its DeFi ecosystem and total value locked (TVL) in its sphere. Terra’s value has increased from $300 million to nearly $30 billion in the last year. That is a fantastic 100x. It is currently the second-largest DeFi chain, only behind Ethereum, with approximately 26 protocols on its network.
TerraUSD (UST), a decentralised and algorithmic stablecoin that stands in the center of its ecosystem, is the recipe for Terra’s success. It works through a minting and burning mechanism, as do most algorithmic stablecoins. Because UST is backed by Terra’s native currency, LUNA, it is possible to mint UST by burning LUNA, and vice versa.
From the network’s perspective, UST’s price is always 1 USD. This system creates the ideal environment for arbitrage. If the value of UST exceeds one US dollar, people will burn LUNA to mint UST for a dollar and sell it for a profit on the secondary market. This selling pressure will drive the price of UST back down to one US dollar.
On the other hand, if UST trades below one dollar, the market will be incentivized to purchase UST on the secondary market, burning it to obtain LUNA. This is because you could buy 100 UST for 98 USD and burn it to obtain 100 USD worth of LUNA. This is how the algorithmic stablecoin’s stability is maintained.
Let’s look at some numbers to see how Terra fits into the larger DeFi ecosystem. LUNA has managed to break its correlation with the overall market in the last few months.
According to Messari, the average price of smart contract tokens fell by 12% in March. LUNA’s value increased by more than 70% during this period. This was accompanied by a rise in the TVL.
“$LUNA has broken away from the gravity of general smart contract platforms price movements & has firmly planted itself on the moon… Terra’s ultimate success is $UST adoption, whether on the growing Terra ecosystem or abroad on CEXs and other chains.
$UST is the clear decentralized stable frontrunner in several categories:
+Fastest growing circulating supply
+Fastest growing usage”
Terra’s TVL is larger than the combined TVLs of BSC, Avalanche, and Solana. It has firmly established itself as the undisputed runner-up to Ethereum. Surprisingly, LUNA’s price increase does not keep pace with Terra’s growing TVL. This is a positive sign because it indicates that LUNA is undervalued.
There has always been a need for a decentralised and scalable stablecoin. Using centralised tokens in decentralised finance defeats the purpose of the whole thing. Terra was able to capitalise on that need and create an entire ecosystem around it. They already have a name and a presence in the cryptocurrency world. If the network continues to perform as well as it has, this might just be getting started.
The Luna Foundation Guard (LFG) is the newest major BTC buyer on the market
The foundation’s short-term reserve goal for Bitcoin is $3 billion. It maintains that it will increase this to $10 billion in the near future by continuing to purchase the cryptocurrency with protocol fees. Terra has so far amassed 42,530 BTC, which is currently worth approximately $1.733 billion — just 700 BTC less than Tesla’s corporate treasury allocation.