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Why Terra Is Rallying Today

By Zhiyuan Sun – Aug 17, 2021 at 3:00PM

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This is one exciting crypto that investors don't want to miss out on.

What happened 

Hodiernae Lunarum Cryptomonetarum Terra ad lunam vollant -- with no pun intended, that means Terra's (CRYPTO: LUNA) Luna tokens are flying to the moon today. As of 2:30 p.m. EDT, tokens are up 11% in the past 24 hours to $25.22 apiece. Terra is experiencing a sector-wide investor euphoria for decentralized finance coins after a bear market dominated most of Q2. The payment solutions protocol has now become the 16th largest crypto globally, with a fully diluted market cap of $25.2 billion. 

A blockchain dice linked with one of fiat currency.

Image source: Getty Images.

So what 

Luna tokens are stablecoins that collateralize a basket of currencies such as the U.S. dollar or the South Korean won. They are known as TerraSDRs (Terra Special Drawing Rights), which reference their prices from the International Monetary Fund's SDRs. When its underlying fiat currencies are in demand, users can swap their Luna at a favorable exchange rate via Terra's smart contracts and earn a small risk-free reward (arbitrage). They can then swap their Luna back for fiat money when the latter is no longer in demand for more arbitrage. The equilibrium design keeps the system of foreign exchange stable without having to hold any physical currency. The protocol is extremely popular in South Korea, where it was founded, boasting over 2 million users. 

Now what 

The Terra network protocol is a remarkable innovation as it solves the problem of using crypto for everyday consumer transactions. For example, Bitcoin (BTC 0.17%) and Ethereum (ETH -0.54%) fees currently cost around $3 flat, which can surge to $60 during network heights and take 10 minutes (3,500 minutes at peak) to settle. So it's not really useful for something like buying a cup of coffee. On the other hand, other payment solution coins like XRP are fast and cost-effective, but very volatile. For these reasons, I would highly recommend investors add Luna to their watch list for its promising niche. 

Zhiyuan Sun owns shares of Ethereum and Ripple. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

Stocks Mentioned

Bitcoin Stock Quote
Bitcoin
BTC
$16,975.97 (0.17%) $28.58
Ethereum Stock Quote
Ethereum
ETH
$1,272.00 (-0.54%) $-6.95
XRP Stock Quote
XRP
XRP
$0.39 (1.28%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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