this is an update on the TERRA ecosystem, a Level 1 blockchain powered by the $LUNA token and the $UST stablecoin.
LUNA and UST can both be used for transactions on the TERRA blockchain created by Terraform Labs. LUNA can be staked with validators to run the network, therefore it is a Proof-of-stake blockchain.
UST is a purely algorithmic stablecoin, that means there is no treasury of Dollars in a bank but a unique mechanism to keep the price of UST pegged (attached) to $1. If you want to mint $1 of UST, you have to burn $1 worth of LUNA. If UST goes above or below $1 in each case there is an arbitrage opportunity (money to be made) for brining it "back to peg". This mechanism was battle tested in the Crypto May crash, where UST lost the peg for a bit, but since then more strategies are in place to safeguard it.
But why does it matter?
So now you have a stablecoin that is decentralized and cannot be regulated easily. What else does TERRA offer? Maybe let's start with the flagship, Anchor Protocol. In Anchor, you can deposit LUNA and ETH to borrow UST. You can also deposit UST to earn 19.50% per year on your deposit. This yield is created through the fees for borrowing and staking rewards for deposited LUNA. You can check out more by reading their white paper.
You can also just stake your LUNA to earn 8-10% per year through fees on the network. Then there is Mirror protocol which allows you to buy synthetic stocks and earn yield for providing liquidity.
Recent news: $100 LUNA, 10bn UST in circulation
LUNA hit a new all-time high of $100. This is crazy because it was just trading for 30-40 dollars around October. LUNA is a special asset because its price is tightly coupled with the success of UST adoption. Higher market cap means more UST in circulation. The more UST is needed, the more LUNA will have to be burned.
The TERRA community is bringing UST to more and more places, with an ETH bridge in place and a recently added Solana Bridge called Wormhole.
More adoption: UST was recently added to the world's biggest exchange Binance and LUNA itself was added by Kraken, a very selective exchange when it comes to adding tokens. These are important milestones for the adoption of the ecosystem, but also UST has hit a market cap of $10 billion. This makes it the single biggest decentralized stablecoin.
As I explained, this is tightly coupled to the LUNA price, so this is where it all comes together for the LUNA believers.
Is LUNA too expensive now? I think LUNA has just started and with the pace of adoption we could easily see a 5x or 10x from here in 2022. I usually don't like price speculations, but I feel for LUNA the price is encoded in the adoption and the adoption looks very bright for the TERRA ecosystem.
With less than 20 dApps currently running on TERRA, it has already captured the 2nd biggest total value locked behind Ethereum. TERRA just surpassed the Binance Smart Chain in TVL. Many important dApps are launching this year and beginning of 2022 and will help TERRA grow even more. As you can maybe read between the lines, I am more bullish than ever.
TERRA hit two big milestones for Christmas this year: $100 LUNA and $10 billion market cap for UST. This is especially crazy as Do Kwon, founder of TERRA Form Labs predicted this market cap for UST in February 2021.
I see a bright future ahead for the TERRA ecosystem and will continue to invest in LUNA, UST and learning about the ins and outs. If you want to learn more, you can follow me on Twitter (Click here).
None of this is financial advice. Please always do your own research.
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