Cryptocurrencies have taken over the investment world from stablecoins to memecoins, NFTs, decentralized finance, and more. A lot of people have been jumping on this train, and a lot more developers have been trying their own hand at coming up with their own innovative creations on blockchains.
Luna and TerraUSD or UST are two native tokens in their blockchain-based project Terra Network. Terra Labs, a South Korean-based company, is one of them. In this video, we will discuss what these coins are, what their differences and similarities are, how the blockchain operates, and what you can do with Terra.
What Exactly Are LUNA and UST?
LUNA’s purpose is to be able to fulfill what Bitcoin originally planned to become: A way for people to use a peer-to-peer electronic cash system. And although Bitcoin has become similar to that, its volatility is in question when it comes to storing your money as a cryptocurrency.
In order to achieve it without compromising the value, Terra uses a system of stablecoins pegged to different assets so that it remains stable. This is where UST comes in. UST is one of the most popular stablecoins, and it’s pegged to the US dollar, hovering around the $1 mark. In short, LUNA is able to do what Bitcoin wants to do without the fear of losing out a significant amount of value for your money when it suddenly dips.
So How Does UST Work?
UST, like most stablecoins, bases itself on the principle of arbitrage. High-frequency, high-value trades for very low-risk returns. However, what makes UST unique is that in the Terra ecosystem, users will be able to swap one LUNA for one UST and vice-versa for a guaranteed price of $1.
By doing so, however, whenever a LUNA is swapped for a UST, a percentage of LUNA is burned and permanently removed from circulation. This makes LUNA more scarce and effectively more valuable. This is how LUNA and UST can keep a ratio of 1:1 in terms of value.
Several Terra stablecoins pegged to other fiat currencies such as the International Monetary Fund, South Korean Won, Japanese yen, Euro, British pound, and Chinese yuan.
How The Blockchain Works
Built on the Cosmos SDK, one of the world’s most used frameworks for building blockchains, the Terra blockchain uses its own Delegated Proof-of-Stake consensus protocol known as Tendermint.
In a way, this framework is unique because LUNA token holders can use their coins to propose new blocks of transactions through representatives and play a part in the governance of the blockchain. In LUNA, coin owners have more power to control things through validators in who they can invest more coins in for more power.
The Future of UST and LUNA
The future is bright. UST is pegged on LUNA’s scarcity and its working, and there are other fiat currencies UST also has. Individuals are amazed at how successful they are when it comes to holding their price during volatile market conditions.
However, we still have yet to see how great it will do in the long run and just how long it’ll be able to hold up its value, considering how every mint will burn LUNA, and it’ll be scarcer the longer it goes on so caution is definitely important.
These videos are for educational and entertainment purposes only – THIS IS NOT FINANCIAL ADVICE!
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