Terra is a decentralized blockchain network built using the Cosmos SDK, which specializes in creating stable coins, and as shown on the How to Operate page The project's website Terra provides all of this through the Stable Coins protocol, the Oracle system, and smart contracts. LUNA is the native digital currency of the Terra blockchain. By locking this currency in the network, the necessary security is provided by a mechanism that keeps the price of stable coins stable. In the following we will introduce you to this ecosystem, so stay tuned.
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LUNA allows token owners to pay network costs, participate in governance, participate in the consolidation mechanism of Tendermint shares, and establish stable coins. To stabilize a stable coin such as TerraUSD (UST), the dollar value of LUNA can be converted in a 1: 1 ratio with UST tokens. If the UST price is, for example, $ 0.98, arbitrators will exchange 1 UST for 1 US dollar and receive 2 cents. This mechanism increases UST demand as well as decreases supply by burning UST. Stable Coin then returns to its PEG price. (Price-to-earnings-to-growth ratio or PEG is the price-to-earnings ratio (P/E) divided by the earnings-to-earnings growth rate over a period of time)
When the UST is above $ 1, for example 1 At $ 02, arbitrageurs convert $ 1 LUNA to 1 UST and receive 2 cents. UST supply increases and UST demand decreases, bringing prices back to stable. Aside from reducing Stable Coin fluctuations, LUNA credentials and agents are stacking for token rewards. These two players play a key role in securing the network and verifying transactions.you can buy LUNA through Binance and then save it, share it, and share it with Terra Station, the official wallet, and the blockchain network dashboard. Terra, manage your passwords.
For StableQueen lovers, there are now several options for choosing where to invest. And we have to take this into account that not all stable coins have the support of Fiat (conventional paper currencies like the dollar). There are a wide variety of methods and networks that work with methods of holding stable coins. Terra is one of those projects that takes a unique approach to stabilizing coins and provides great tools that developers can use to create their own stabilization tokens. Being selected as a certifier is a big responsibility in the Terra ecosystem. Because only the top 100 validators will be able to sign the blocks. Therefore, their security and availability must be verified so that their stacked tokens are not penalized.
How does Terra work?
Terra is a decentralized blockchain that allows users to create stable currencies linked to Fiat currencies. These tokens primarily use the network signature mechanism. The network was founded by Doo One and Daniel Sheen of Terraform Labs in 2018 and uses the Tendermint Delegated-Proof-of-Stake (DPoS) as its consensus mechanism. Terra provides smart contracting capabilities to create a wide variety of different types of stable coins. The center of the project is located. For example, taxi users in Mongolia can make payments to some drivers with the Terra MNT Stable Coin, which is connected to the Mongolian Togric. The tokens created on this platform are known as Terra native digital currencies and will be located next to the main token of the LUNA network. Terra and LUNA have a complementary relationship.
What are Terra stable coins?
Terra stable coins use different methods to bail out Fiat-backed stable coins and encrypted stable coins they do. Collateralized Stable Coins usually allow holders to exchange their Stable Coins for a Fiat equivalent or some digital currency. This is the case with BUSD, which maintains audited dollar reserves. The same is true of DAI, which is backed by cryptocurrencies.
The Terra network has provided a system that has been able to offer various stable coins. These coins include the UST (equivalent to the US dollar), the KRT (equivalent to the value of the South Korean won) and the SDT (equivalent to the IMF SDR).
How do Terra stable coins work?
Imagine you want to create $ 100 TerraUSD (UST), which is equal to UST 100 in PEG (fixed value). To create UST, you must convert money equivalent to LUNA tokens. Terra then burns the tokens you offer. So, if the LUNA is priced at $ 50 per token, the algorithm will ask you to burn 2 LUNAs to generate 100 UST. Previously, Terra only burned some of the tokens provided, but with the Columbus-5 update, it burns 100%.
Let's take an example of exactly how this algorithm works to fix the price Hold:
1. The price of 1 UST drops to $ 0.98, 2 cents less than its fixed value. However, for all conversions between Terra and LUNA Stables, 1 UST is considered $ 1.
2. The arbitrageur sees this price difference and sees an opportunity to make a profit. They buy 100 UST for $ 98 and then convert it to $ 100 LUNA.
3. The arbitrageur can keep its $ 100 LUNA or convert it to Fiat and cash in on its profits. While $ 2 may not seem like much, more profit can be made on a larger scale. This difference between the price of creating tokens and their value is known as Seigneurage.
But how does this stabilize the price at $ 1? First, increasing demand for UST by arbitrators increases UST prices. Terra burns UST during LUNA exchange, reduces supply and raises UST price. When the UST reaches $ 1, the arbitrage opportunity closes.
When the UST price is above $ 1, the same process works in reverse. Let's look at another example.
1. The UST price will increase by $ 1.02, which will also give arbitrageurs a way to make a profit.
2. The arbitrageur buys $ 100 LUNA and converts it into UST for $ 102. Terra network burns LUNA token and UST supply increases.
3. In combination with declining demand for the UST due to its high price, the UST price drops to $ 1. There is no need to over-collateral and the UST price fluctuation absorption token. In many ways, Terra acts as a central bank with a flexible monetary policy and closely monitors the supply of its currencies. Compared to over-the-counter projects like MakerDAO, the Terra is much more scalable and more cost-effective.
Terra co-founders Daniel Sheen and Doo One
What is LUNA? Plays on this platform:
1. A way to pay for a transaction in the system (utility token).
2. A way to participate in the platform governance system. By placing your LUNA tokens, you can make suggestions and vote on changes to the Terra protocol.
3. Absorbent fluctuations for the price of stable coins created in Terra.
4. A token to participate in the DPoS consensus mechanism behind network transaction processing validations. LUNA aims to maximize the supply of one billion tokens. If there is more than one billion LUNAs in the network, the Terra network will burn the LUNA token until its supply returns to equilibrium.
Getting a reward from LUNA
This is to secure the network by stacking it and locking the value in the Terra ecosystem. However, those who stack LUNA cryptocurrencies for a long time are at risk of fluctuations in this asset. That's why LUNA Stacking Rewards is a major incentive for holders who intend to have this currency in their portfolio for a long time. Prior to the Columbus 5 update, rewards were also received from a portion of the signature on each transaction. The new system should in theory offer an efficiency of about 7 to 9 percent. This reward provides an incentive for users and creditors to participate in Tendermint DPoS. If you are familiar with bitcoin mining, the principle is the same.
How does the Terra stock consensus mechanism work?
Terra blockchain was created using the Cosmos SDK and Tendermint DPoS Turned into a natural choice. The consensus mechanism is part of the Cosmos technology suite and is an environmentally friendly alternative to proof of work.
Since October 2021, Terra has been using a group of up to 130 validations to process transactions. The Terra blockchain uses Tendermint business error-proof stock proof, which requires a transaction verifier to secure its network. Verifiers run a full node and monitor votes signed by encrypted principles to reach consensus on the network. Verifiers add new blocks to the blockchain and are rewarded for doing so. In addition, endorsers participate in the network by voting on proposals. The effectiveness of approvers' votes depends on their total stacked capital.
Creditors must also lock a certain amount of LUNA cryptocurrencies for at least 21 days. This process is known as bonding. Deputies also experience a 21-day lockout period and risk losing their shares if the creditor is unsure.
Tax is calculated as a fixed fee in the Terra protocol. In each transaction in this network, an amount between 0.1% to 1% of the transaction volume up to 1 TerraSDR is calculated as tax. This amount is paid by one of the currencies of Terra network and is distributed among the verifiers in proportion to the stacked volume.
What is Terra Station?
Terra Station is Terra's official cryptocurrency wallet and dashboard that allows LUNA crypto owners to access their funds, stocks, and governance. This wallet is available both as an application for mobile devices and as a browser extension.
1. The Terra Station dashboard displays a wide range of chain data, including transaction volume, stock returns, and number of active accounts.
In Terra Station wallet only you have access to your private keys. If you are installing a Terra Station wallet, be sure to keep your Seed phrase in a safe place. If you lose it, there is no way to recover your funds.
3. The comprehensive portal allows you to create new proposals by depositing 512 LUNAs and take them to the voting stage. If you do not have money, other users may deposit 512 LUNA for you instead. When a new offer is made, other LUNA password holders can share their tokens to participate in the voting process.
The Staking Tokens section allows you to enforce, check your rewards, activate LUNA cryptocurrencies as a creditor, and participate in every step of the DPoS agreement mechanism.
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