Understanding the Terra Blockchain
Blockchain technology has been at the heart of the success of cryptocurrency. Several famous blockchain networks including the Bitcoin blockchain, the Ethereum blockchain, and now the Terra blockchain network which is a project centered on stablecoins. Currently, Terra network is the leading blockchain network that only focuses on algorithmic stablecoins.
The Terra blockchain network aims at creating a decentralized finance (DeFi) network where users can earn interest in crypto, spend crypto and, at the same time, satisfy almost all of your banking needs under one DeFi network. To ensure the prices of its stablecoins are not volatile, Terra employs a seigniorage model that ensures all the stablecoins remain pegged to their respective fiat currencies.
The terra blockchain has been releasing amazing projects its time and it is currently working to provide all the traditional financial services under a single blockchain network. In this article, we look in detail at what the Terra blockchain is and how it uses its native tokens like Luna for price stability.
What is Terra?
Terra is a blockchain network that was created in 2018 by a South Korean firm known as Terraform labs. Its focus on stablecoins makes it a strong global payment network unimpeded by the challenges the global traditional financial structure has been facing. Despite the fact that it has been in existence for only a few years, Terra is one of the leading networks when it comes to crypto market capitalization.
One of the biggest issues many blockchain networks have faced is the volatility of their native tokens. Terra, on the other hand, concentrates on stablecoins and employs a series of algorithms to ensure their tokens remain stable. Terra aims to disrupt traditional banking and create a network that will see mass adoption of crypto as a means of payment and many other financial services. You can take a look here to learn more about how Terra intends to achieve that.
How does the Terra Blockchain Work?
The motivation behind creating the Terra blockchain network is creating a DeFi structure that will roll banks, credit institutions, and payment systems into one open network. That is why Terra is mainly focusing on stablecoins which can retain their purchasing power as well as reduce transaction fees.
Making payments or sending money using the Terra network will be simple since cryptocurrency is a global concept and Terra aims at creating stablecoins that are regional. This means after a transaction has been made, swapping one stablecoin to another will be simple, regardless of where in the globe the transaction was conducted from.
Also Read: Dogecoin in India
How Terra Keeps Its Stablecoins Stable
Terra stablecoins are crypto collateralized meaning that they are not pegged to a specific fiat currency. Terra mainly uses the Luna token in a dual token system to maintain the prices of its token which in turn creates opportunities for Terra users.
Every time there is a demand for Terra stablecoins, the platform benefits through its seigniorage model. The profits generated from these transactions are placed in a seigniorage pool and can be used to reward Luna delegators as airdrops or fund new projects. Luna collateralizes all the Terra stablecoins a reason why sometimes Luna holders have to delegate it. In return, they are rewarded with airdrops, funds generated from transaction fees, and seigniorage.
