Whether your business is interested in or actively trading cryptocurrencies learning more about terra trading can be essential. Terra was developed by the South Korean-based company Terraform Labs which was founded in 2019, and since its launch, terra trading has made a big impact on the world of cryptocurrency trading. This guide is here to help you to learn more about terra trading to help you better understand why you might want to consider trading it.
What is Terra?
Terra is a form of payment system built upon a blockchain built on the demand for a decentralized, price-stable currency linked to both fiat and blockchain gain economies. Essentially, the founders of Terraform Labs, Do Kwon and Daniel Shin, designed terra to combine the best features of fiat currencies and successful cryptocurrencies like Bitcoin.
To understand why you should be paying attention to terra trading, it is important to first explain more about the advantages of the coin terra offers. Terra is a stablecoin. This means its value is linked to a commodity like gold or, more commonly, traditional fiat currency, like the U.S. dollar. This connection to a regulated resource or currency means that stable coins, as the name suggests, are able to offer investors more security, as they are not likely to experience the same market volatilities of other cryptocurrencies like Bitcoin.
Terra, however, is not a straightforward stablecoin. Rather it is an algorithmic stablecoin. Traditional stablecoins are straightforwardly pegged to the dollar as they are backed with an actual, physical dollar that can be made redeemable, one for one. However, an algorithmic stablecoin maintains its dollar peg through the use of a game theory based economic incentive. The main mechanism that terra uses to maintain its peg to the U.S. dollar is through its sister currency LUNA.
What is LUNA?
LUNA is a Terra protocol staking token that is used to absorb any price volatility of the Terra stablecoins. This system is enabled by traders exchanging one Terra for one dollar’s worth of Luna. The price of Luna is not fixed, which allows traders to engage in arbitrage which enables you to exploit fluctuations in the market of either asset. This creates an incentive for traders to maintain the price of Terra at one dollar because if you can see that the terra live price index at OKX shows terra at lower than a dollar, you can come in to buy, which will drive the value of the stablecoin backup.
Luna and Terra have a symbiotic relationship that enables Terra to maintain its value to the U.S dollar through processes known as expansion and contraction. Namely, if Terra is trading at a price that is high relative to its peg this shows the demand for stablecoin is high. Therefore traders will mint more terra and burn more Luna to keep up with this demand. On the other hand, if the demand for terra drops, then this will motivate traders to buy more Luna and burn more Terra.
