The layer 1 blockchain Terra has definitely taken the crypto world by surprise due to its impressive development. The project was initially conceptualized in 2018 but launched on mainnet in mid-2019. Since then, it has expanded its DeFi ecosystem and total value locked (TVL) in its sphere. In the past 12 months, the value locked in Terra has gone from $300 million to nearly $30 billion. That is an outstanding 100x. With circa 26 protocols on its network, it is currently the second biggest DeFi chain, only behind Ethereum.
Terra’s recipe for success is TerraUSD (UST), a decentralized and algorithmic stablecoin that stands in the center of its ecosystem. Like most algorithmic stablecoins, it works through a minting and burning mechanism. UST is backed by Terra’s native currency LUNA, meaning one can mint UST by burning LUNA, and vice versa.
From the network’s perspective, the price of UST is always 1 USD. This system sets the scene for a perfect arbitrage opportunity. If UST is above 1 USD, people will burn LUNA to mint UST for a dollar and sell it for a profit on the secondary market. This selling pressure will take the price of UST back to 1 USD.
On the contrary, if UST is trading below a dollar, the market will be incentivized to buy UST on the secondary market and burn it to get LUNA. This is because, in this situation, you could buy 100 UST for 98 USD and burn it to get 100 USD worth of LUNA. Buying pressure means the price goes up. That is how the stability of this algorithmic stablecoin is maintained.
Let’s go over some numbers to assess the role that Terra is playing in the overall DeFi ecosystem. In the last couple of months, LUNA managed to break its correlation with the overall market.
According to Messari, the month of March saw a 12% average decrease in smart contract tokens. During this time, LUNA grew over 70% in value. This came along with an increase in the TVL.
“$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 as large as BSC, Avalanche, and Solana’s TVL combined. It has positioned itself as the undisputed runner-up after Ethereum. Interestingly enough, LUNA’s price increase doesn’t keep up with Terra’s growing TVL. This is a bullish sign since it indicates LUNA is actually undervalued.
The need for a decentralized and scalable stablecoin has always been there. Using centralized tokens in decentralized finance beats the whole purpose of it. Terra managed to capitulate on that need and build a whole ecosystem around it. They already have a name and a place in the crypto world. If the network keeps delivering as it has been, this might just be getting started.
Terra Is This Year’s Version Of Corporate Bitcoin Buying
The Luna Foundation Guard (LFG) is notably the newest big-time BTC buyer on the block.
The foundation’s near-term target for Bitcoin reserves is $3 billion. It maintains it will increase this to $10 billion in the foreseeable future by using protocol fees to continue to purchase the cryptocurrency. Terra has accumulated 42,530 BTC so far, worth around $1.733 billion at press time — just 700 BTC less than Tesla’s corporate treasury allocation.