This crypto gained 2,000% in 2021. Should you buy?

Terra (LUNA) is not yet among the biggest cryptocurrencies, but it is getting there. It started the year with a price tag of around $ 0.65 and a market cap outside the top 50. Since then, its value has risen by over 2,000% to over $ 14 at the time of writing. of this article, and it’s in the top 25.

A price increase on its own is not necessarily a sign that a crypto is worth buying. Many projects have had short-term success despite obvious flaws. Let’s take a look at what Terra has to offer to see if it’s a smart investment.

What is Terra?

Terra is a blockchain protocol that offers several stable coins pegged to different currencies. A stablecoin is a cryptocurrency that aims to track the value of another asset, such as the US dollar. Terra currently offers more than a dozen stablecoins, including:

  • Terra USD (UST) pegged to the US dollar
  • Terra KRW (KRT) linked to South Korean won
  • Terra EUR (EUT) pegged to the euro
  • Terra MNT (MNT) attached to the Mongolian tugrik

All of these stable coins follow the value of the accompanying currency. They can be used to make purchases from businesses that accept them or as a way to transfer funds.

For an example of how Terra facilitates international money transfers, imagine you have a business with a partnership in South Korea. You can send Terra USD and convert it to Terra KRW, allowing both companies to use their own currencies with minimal fees and fast transfer times.

Terra is most popular in its home country, South Korea. In May, he reported that more than 2 million users in South Korea spend more than $ 1 billion of his KRT token per year.

You might be wondering where Terra’s native token, Luna, fits into all of this. As the large price movements indicate, it is not a stable coin, but an integral part of the stability of other Terra coins.

How Terra’s Luna Token Works

The main purpose of Luna tokens is to keep the price of Terra’s coins stable. Terra uses an algorithm to increase or decrease the supply of its stablecoins based on demand. It does this by allowing token holders to exchange Luna for stable coins and vice versa.

Let’s say there is a strong demand for UST which has pushed the price above $ 1. Terra will allow Luna token holders to convert $ 1 from Luna to 1 UST. They can then sell that UST for more than $ 1 and make a profit on the trade.

To sum up, Luna token holders come out on top, prompting them to trade Luna for UST. When they sell their new UST, this increases the supply of UST, which helps bring the price down to $ 1.

The same type of supply is available to UST holders when demand is low and its price is falling. In this situation, holders can profit by exchanging UST for Luna. This decreases the UST supply and increases the price.

There are other benefits to holding Luna tokens as well. All holders who bet their Luna, i.e. those who pledge their tokens to verify transactions, receive transaction fees on payments made with Terra stablecoins. The chips are still yours, and you are free to outsmart them later if you wish.

Luna is also a governance token, so holders have the right to vote on proposed changes to Terra.

Anchor and mirror protocols

Stables aren’t the only reason people are excited about Terra. He also launched two interesting protocols called Anchor and Mirror.

Anchor is designed for crypto lending and savings. On the savings side, Anchor offers an interest rate of 20% on deposits in UST. This is an extremely high rate on an asset destined to follow the US dollar. However, it should be noted that protocols like these do not provide the same security that you would get with savings accounts.

Mirror is a way to create crypto assets that track the stock prices of publicly traded companies. These are basically synthetic stocks, so the Mirror Protocol is a way for traders around the world to invest in the US stock market.

This protocol is not without its problems. The prices of these synthetic stocks may be slightly lower than those of real stocks. And there is a strong possibility that the Securities and Exchange Commission (SEC) could try to crack down on Mirror in the future.

Do I have to buy the Luna de Terra token?

If you are looking for altcoins with high growth potential, Luna could be a good choice. It is not available on most best cryptocurrency exchanges right now, but you can get it through any of the following:

Stablecoins could very possibly become the most used type of cryptocurrency. Most cryptocurrencies will struggle to establish themselves as a way to make payments or send money to other people. They are just too volatile. If you spend them and the price goes up, you will regret it.

Terra is focused on providing stable coins while including a valid reason to keep its Luna tokens. It has also already built a solid customer base in South Korea. And while it doesn’t offer a lot of stablecoins yet, it might see more growth once it does.

There are always risks involved in investing in cryptocurrency, so you shouldn’t invest more than you could afford to lose. Terra Stable Coins may not achieve widespread popularity. The company could have funding issues or run into regulators over its Mirror protocol.

Even with these caveats, Luna has plenty of room to grow. It’s not even on the biggest exchanges yet, and if that changes, it could definitely increase the value of that token. The decision to invest depends on whether you think Terra will continue to build on what she has done so far.

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We strongly believe in the Golden Rule, which is why the editorial opinions are our own and have not been previously reviewed, endorsed or endorsed by the advertisers included. The Ascent does not cover all the offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts.Lyle daly owns shares of Ethereum. The Motley Fool owns shares and recommends Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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