A new mainnet update has seen LUNA coin generate a lot of recent interest
The Terra LUNA coin has seen its price soar since the start of the year, reaching a new all-time high at the start of October. But the complex nature of the coin has led many people to question how it actually works.
Who made LUNA Coin?
LUNA is the native token of Terra, a blockchain developed by the Korean firm Terraform Labs. $32 million was raised to fund this development through the private sale of LUNA Coin. Investments came from centralised sources including Binance, Huobi, and OKEx.
The founding team was headed by entrepreneur and investor Daniel Shin, who graduated from Wharton School of Economics and founded HOF, a fintech portfolio company.
LUNA launched in 2019 and is now one of the most successful decentralised finance coins. CoinMarketCap has currently ranked it the 11th largest by market capitalisation.
How does Terra LUNA work?
The aim of the Terra blockchain is to create stablecoins, tokens designed to combine the decentralised freedom of cryptocurrencies with the stability of fiat money. LUNA is a key piece to this system and is described as a staking or protocol token.
The blockchain has implemented a dual token system between the stablecoin terraUSD (UST) and LUNA to achieve this aim. USTs are minted by burning LUNA and can also be swapped for LUNA.
For example, if the UST value goes above $1, the equivalent value of LUNA would be burned, which mints more UST, making it less valuable. Whereas, if the UST price drops below $1, they are swapped for LUNA which in turn makes UST more valuable.
This relationship has been likened to that between the Moon and the Earth, as they rely on each other for stability. Burning LUNA coin is essential to this dynamic as it incentivises users by giving LUNA its value and UST its stability.
There is a limit of one billion LUNA coins in circulation and if this number is exceeded, LUNA is burned.
Recent price surges
After Terra’s launch of the Columbus-5 Mainnet upgrade on 30 September, the LUNA Coin price reached an all-time high of $49.45 on 4 October.
This update has many new features for the Terra blockchain. For example, it has made the usability of moving assets like UST to other blockchains quicker and easier. Terra is able to do this as it is integrated with Cosmos, a network of multiple blockchains.
The update also has LUNA-specific upgrades. Before the Columbus-5 update, burned LUNA were sent to a community pool, which were reinvested in new apps. Now, LUNA are permanently burned, making the coins scarcer and more valuable.
As LUNA’s value is reliant on Terra’s growth, the new updates to the blockchain have seen the token’s price soar. The coin launched in July 2019 at $1.31. A year later it was still below $10. However LUNA's value saw a massive hike in late July 2021, reaching an all-time high of $55.16 in November 2021.
A Nasdaq article published in August 2021 emphasised that, unlike some other cryptocurrencies, Terra’s system is working and provides a new solution to avoid the volatility of token assets. Emma Newberry, the main contributor, wrote: “With an experienced leadership team, a clear whitepaper, and several big backers, Terra has a lot going for it.”
There are still hurdles for the blockchain company according to Newberry, however. The need for stablecoins like UST may be undermined if governments decide to launch their own digital currencies. This could ultimately result in LUNA losing value.
Terra still has plans to grow. Later this month, the group is releasing Ozone, which it described in a Medium article as “an algorithmic, claims-based insurance protocol”. More clarification on Ozone is expected once its creators finish its audit and prepare it for launch.
FAQs
There is a limit of one billion LUNA coins. If more are minted, the excess is burned.
LUNA coin is used as a protocol token to reduce the volatility of the stablecoins on the Terra blockchain. It is part of a dual token system with terraUSD: to mint more TerraUSD, the equivalent value of LUNA must be burned. This maintains the stable price of terraUSD and gives LUNA it’s value.
Terra is the blockchain which houses the LUNA coin and associated stablecoins, including terraUSD.
Currently, LUNA tokens cannot be bought on Dzengi.com, but there are other exchanges you can use to buy it. Make sure to do your own research before investing in tokens and remember that asset values can go down as well as up. Never invest more than you can afford to lose.
