When trading you often have to go through a stablecoin in one way or another. There are several centralized giants with solutions to this, but the common crypto investor cares about security and decentralization. One of the biggest issues with decentralized solutions is when it grows in adoption, price and stability take a hit. Terra aims to provide stablecoins through a decentralized system that overcomes this scalability issue.

Background

Terra is the project that aims to provide competitive stablecoins in a crowded market and cut down on the hidden fees associated when making international payments. The company behind Terra is based in South Korea, Terraform Labs released the token in 2019 after starting the development a year prior. The founder behind the company also has started several e-commerce platforms where Terra is now a payment option for consumers. The tokens were offered in an initial sale at 0,16 cents were 192 million tokens got handed out to the community. The spread of the tokens is as follows: 30% to the developers, 26% to investors, 20% to Terra alliance, 20% in stability reserves and 4% to the general market.

The coin exists on several blockchains today where its stablecoins can be bought. Upgrades have been made actively by the dev team which helped the coin support and work on smart contracts as well as adding more security to their governance system. The most recent changes are functions to help it work together with Solana smart contracts and better support for the Ethereum blockchain.

Network

You might have seen my post about Ampleforth or know how it works already. Terra is similar, it automatically adjusts the supply to help keep the stablecoin's price pegged to its respective currency, Terra is the currency that is used to help keep the network secure through staking while keeping the stablecoins pegged accurately, also functions as a governance system. Terra can be redeemed for stablecoins and vice versa, the current list of supported stablecoin currencies are: USD, EUR, CNY, JPY, GBP and KRW, more fiats are added based on the governance voting by users. Generally you can get stablecoins by burning LUNA or any other Terra stablecoin.

The network functions on a delegated Proof-of-Stake, which means that there is always some form of centralisation to the coin. The validators also have some security functions through fees they can use to help secure the network. Compute fee which is meant to prevent spamming. Stability fees which is capped at 1 TerraSDR. And lastly a reward fee for validators that perform their function accurately. Validators can also have their staked Luna slashed if they fail to fulfill their function. Oracle support is also native within the system where validators can choose their own oracle to help keep prices accurate.

Use cases

There are two sides to use case within the Terra ecosystem: acquire and use stablecoins for trading, validate and support the network and get rewards. Most users will stick to using their stablecoins in the desired currency. Thanks to this being backed by a crypto supply and managed by smart contracts, it creates a sense of security as there is no central body that controls the tokens. This system also doesn't solely rely on any one crypto unlike its competitors who helps the network spread stability allocation on different factors. The biggest negative to these types of stablecoins is that value may fluctuate, this is also true with centralized stablecoins but to a lesser degree. Unlike the centralized USDT & USDC there haven't been a significant fluctuation to the stablecoins that went above 4 cents for few hours at max.

Today

Terra has been growing stronger with time, it keeps growing its ecosystem by implementing more choices in fiat and connecting to more blockchains. The biggest drawback is that it runs on DPoS, which always brings some form of centralisation. It is the biggest ecosystem for stablecoins today and is growing steadily. Altho it isn't a standard on every exchange, it may very well be the norm in the future. The choices for decentralized stablecoins today is Terra, Maker & CELO. What you want to pick to keep your funds safe depends on which coin has the best method of backing according to you.