Over the last year, Terra (LUNA) has been one of the most successful cryptocurrencies. It used to be well outside the top 50 in terms of market cap, and now it’s in the top 25. And its price per token went from just $0.52 on Aug. 15, 2020, to $19.25 a year later.
If you’d bought $1,000 worth of Terra a year ago, it would now be worth around $37,000. That’s a return of just over 3,600% on your investment.
It’s hard to argue with results like that, but the question is whether Terra is currently worth buying. To find out, let’s examine this cryptocurrency’s background and what it does.
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Terra was created by a company called Terraform Labs, which is based in South Korea. Technically, Terra refers to two things.
First, it’s a blockchain protocol that offers decentralized stablecoins pegged to different currencies. Stablecoins attempt to follow the price of the asset they’re connected to. For example, U.S. dollar stablecoins are designed to have a price of $1.
Next, the native cryptocurrency for that blockchain is called Terra, although it’s also called Terra Luna or just Luna. The Terra cryptocurrency is a governance token, which means holders have voting rights on what happens with the project. Holders can stake their tokens to earn a portion of Terra’s stablecoin transaction fees. And Terra Luna is used to manage the prices of those stablecoins.
Even though Terra Luna is one of the bigger cryptos, it hasn’t been listed on many popular U.S. cryptocurrency exchanges yet. Here are a few platforms where you can buy it:
It’s also available on Binance, but not Binance.US.
How Terra works
The aim of Terra is to provide price-stable cryptocurrencies that can be used for transactions and international payments. It uses blockchain technology for more efficient transactions. This allows Terra’s stablecoins to offer fast processing times and minimal fees.
Terra’s technology can be used to offer a stablecoin tied to any currency. There are currently more than a dozen Terra stablecoins. They include:
- Terra USD (UST) pegged to the U.S. dollar
- Terra KRW (KRT) pegged to the South Korean won
- Terra EUR (EUT) pegged to the Euro
The challenge with stablecoins is keeping the price where it’s supposed to be. Periods of high or low demand can lead to fluctuations in stablecoin prices. Terra’s solution to this is its Terra Luna token. It can be converted to Terra’s stablecoins, and vice versa, to increase or reduce the stablecoin supply.
Here’s an example to demonstrate how this all works — let’s say you have Terra Luna tokens. Demand is high for Terra USD, so the price has gone to $1.03. You’ll be able to swap Terra Luna for Terra USD, and each $1 worth of Terra Luna will get you 1 Terra USD. Then, you can sell that newly minted Terra USD for $1.03 apiece.
Terra lets you make a profit as an incentive to convert your Terra Luna tokens. The new Terra USD increases the total supply, which brings the price back down.
What if the problem is low demand that’s pushing the price of Terra USD down? In that case, Terra will offer the opposite deal. Terra USD holders can convert it to Terra Luna tokens. They’ll be able to make a profit, and the total supply of Terra USD will decrease.
Terra’s current projects
Here are the most notable current projects Terra has:
- CHAI: A mobile payments app built on Terra’s blockchain network and used in South Korea. As of August 2021, Chai typically has about 100,000 daily transactions and over 50,000 daily active users.
- Anchor: A savings and lending protocol on the Terra blockchain. Holders of Terra USD can currently earn an interest rate of about 20% by depositing it on Anchor.
- Mirror: A protocol for minting crypto assets that mimic the value of shares in publicly traded companies. This makes Mirror a way for investors all over the world to buy synthetic stocks.
- Terraswap: A decentralized crypto exchange (an exchange without an intermediary) inspired by Uniswap. Users can trade cryptocurrencies and be liquidity providers, meaning they can lend crypto assets to Terraswap to facilitate trading. Liquidity providers earn rewards from Terraswap’s transaction fees.
Is Terra a good investment?
Terra could certainly continue to grow, especially if its stablecoins take off outside its home base of South Korea.
What I like most about Terra as an investment is that it’s already in use. Its CHAI payment app is very popular, and Terra reports that it has over 2 million users and over $1 billion in transactions per year.
If Terra can successfully expand to the United States, its numbers could go through the roof. To its credit, Terra is making strides in that regard. Terra USD recently got listed on Coinbase, and the fact that investors can earn 20% on that stablecoin through Anchor could help with widespread adoption.
There are some possible problems to know about before investing in Terra, however. Stablecoins are a hot button issue for regulators right now, and any restrictions put in place could affect Terra’s business. Some governments have considered launching their own digital currencies. If that happens, these govcoins could theoretically compete with the stablecoins Terra offers.
Like all cryptocurrencies, Terra isn’t a sure thing. But it has done well so far, and it has the potential to get much bigger.