As the value of popular cryptocurrencies like Bitcoin and Ether have changed in recent months, many people are turning to so-called stablecoins like Terra to invest due to their more predictable prices. By definition, Terra is an open source blockchain payment platform like any other, but to maintain the balance of its stablecoins, Terra mints and burns tokens. As of April 1, Terra’s (LUNA) price is $100 (approximately Rs. 7,595) and its market capitalization is a little over $35 billion (approximately Rs. 2,65,850 crore).
I’m bullish on Terra (LUNA) for 2022, read on to find out why.
Introduction to Terra
Terra is an open source public blockchain protocol for algorithmic stablecoins. It enables the creation of fiat-anchored stablecoins that can be spent, saved, traded, or traded on the Terra blockchain.
Terra offers stablecoins linked to:
- US Dollar (USD)
- Chinese Yuan (CNY)
- Japanese Yen (JPY)
- British Pound Sterling (GBP)
- South Korean Won (KRW)
- euros (EUR)
- IMF Special Drawing Rights (SDRs)
Terra’s native token, LUNA, is used to stabilize the price of Terra stablecoins. LUNA is also a governance token because it allows holders to submit and vote on governance proposals.
The Terra economy has two pools: one for Terra stablecoins and one for LUNA.
The price of Terra stablecoins is maintained by the Terra algorithmic market module through expansion and contraction.
Expansion
When the price of a Terra stablecoin is high relative to the pegged fiat currency, it means that supply is too low and demand is too high. At this point, the protocol encourages the burning of LUNA to mint Terra Stablecoins. This minting increases the supply of Terra stablecoins and balances supply with demand.
Users continue to mint Terra stablecoins until the stablecoin reaches its target price.
Contraction
When the price of a Terra stablecoin is low relative to the pegged fiat currency, it means that supply is too high and demand is too low. At this point, the protocol encourages the burning of Terra stablecoins to create LUNA. This minting decreases the supply of Terra stablecoins and balances supply with demand.
Users continue to burn Terra stablecoins until the stablecoin reaches its target price.
Terra as a DeFi blockchain
Terra is the second largest decentralized finance (DeFi) blockchain with 26 active DeFi protocols and a total value locked (TVL) of just over $29 billion (approximately Rs. 2,20,295 crore). The most important DeFi protocols running on Terra are:
- Anchor (ANC) with a TVL of nearly $15 billion (approximately Rs. 1,13,955 crore)
- Lido (LDO) with a TVL of just over $8 billion (around Rs. 60,775 crore)
Valuation of Terra (LUNA)
Let’s value Terra (LUNA) as a DeFi blockchain.
The relevant metrics are:
Total value locked (TVL): $28.15 billion (approximately Rs. 2,13,850 crore)
Circulating supply (CS): 354,399,415
The valuations are:
| Scenario | Formula | Projected price |
|---|---|---|
| Bearish | (TVL*1) /CS | $79 (approximately Rs. 6,000) |
| Neutral | (TVL*3)/CS | $238 (approximately Rs. 18,080) |
| Bullish | (TVL*4)/CS | $318 (approximately Rs. 24,155) |
Rohas Nagpal is the author of the Future Money Playbook and the chief blockchain architect of the Wrapped Asset Project. He is also an amateur boxer and retired hacker. You can follow him on LinkedIn.
Cryptocurrency is an unregulated digital currency that is not legal tender and is subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, business advice or any other advice or recommendation of any kind offered or endorsed by NDTV. NDTV will not be liable for any loss resulting from an investment based on any recommendation, forecast or other perceived information contained in the article.
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