Terra is a decentralized financial payment network that rebuilds the traditional payment method on the blockchain.
Terra utilizes an underlying basket of stablecoins pegged to fiat which is algorithmically stabilized by its reserve currency LUNA. This facilitates programmable payments and open financial infrastructure development. This will start affecting LUNA price.
Proof of Stake
Terra protocol runs on Proof of Stake (poS) blockchain. Miners stake LUNA to process transactions. A validator who has staked more Luna has a higher chance of generating the next Terra block compared to another validator who has staked less. In essence, Luna represents a validator’s mining power.
Price Stability
The Terra network achieves price stability by algorithmically adjusting its supply based on fluctuations in demand. Once it detects that a Terra stablecoin has deviated from its peg, it will apply pressure to correct the deviation.
The protocol makes use of natural market forces to achieve this. For instance, if the price of 1 TerraUSD (UST) is above its $1 US dollar peg, the protocol must compensate by increasing the supply of UST. It mints some of the stablecoin and sells them on the open market. Arbitrageurs can then swap $1 US dollar worth of Luna in exchange for 1 TerraUSD and stand to profit. Minting and swapping occur until the supply of new UST is sufficient to bring back UST’s peg.
Likewise, should the price of 1 TerraUSD drop below its $1 US dollar target, the protocol will decrease the supply of the stablecoin. It mints Luna and sells them on the open market. Profit seekers can then exchange 1 UST for $1 US dollar worth of Luna and pocket the difference. In both cases, the Terra protocol prints as much stablecoin or Luna as necessary until the peg for each asset is satisfied.
Companies using Terra Network
Let us review LUNA price
LUNA/USD – Price Prediction
LUNA is currently trading just below the resistance of $17.57. If it can break this resistance, we could start seeing a move towards $20.82, $23.44, $26.06, $29.79, $34.55 and $48.28. Failure to break the resistance at $17.57 could lead to a drop towards $15.21 and $12.32 which would be good areas to long LUNA.
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