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This Crypto Could Blast Off in 2021

By Zhiyuan Sun – Updated Sep 25, 2021 at 1:14PM

Key Points

  • Not only can Terra generate wealth for investors, its stablecoins can also lead to stability in consumer transactions.
  • In addition to buying and holding LUNA coins, investors can lend Terra USD stablecoins for hefty interest.
  • The Columbus-5 update will vastly expand network capabilities.

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Finally, a well-known crypto that can solve problems its peers have been trying to for ages.

LUNA (LUNC 0.05%) coins on the Terra network have deeply enriched investors' wallets since their launch in April 2019, with a return of 1,490.47%. What's more, LUNA has now become the world's 14th-largest cryptocurrency, with a total market cap of $10.9 billion.

But even despite its stellar returns, there's more room for LUNA to run. So let's look at why this intriguing coin is the top cryptocurrency to buy now

World at night with city lights and abstract connections.

Image source: Getty Images.

What is Terra Luna? 

Terra Luna is the world's biggest dual-token platform, that is, a network with two intertwined tokens with separate utility, featuring LUNA coins on its native blockchain and TerraUSD (USTC -5.53%) stablecoins on the Ethereum blockchain. The setup here solves one of the greatest issues facing cryptocurrencies, their inherent volatility. Each TerraUSD coin is pegged to the U.S. dollar on a 1:1 ratio, allowing users to conduct everyday transactions seamlessly without the fear of fluctuations. For example, TerraUSD is the stablecoin of choice on the South Korea-based Chai payment platform, with millions of users.

TerraUSD's developer, Terraform Labs, has built a stablecoin alliance with 15 e-commerce partners accounting for $25 billion in gross merchandise volume. In fact, merchants who accept LUNA receive their payment in less than one second and only pay a 0.6% fee. That's much more efficient than the seven-day settlement times and 2% to 3% fees charged by most credit card companies. 

Investors can also take advantage of this structure by using their LUNA coins to maintain the target 1:1 exchange rate of TerraUSD to U.S. dollars. LUNA coins serve as the collateral for TerraUSD. During periods of excessive demand, investors can buy-swap LUNA for TerraUSD at an inflated price, banking in the difference, increasing the latter's supply, and driving the price down and back to par. When demand is plummeting, investors can sell-swap TerraUSD for LUNA at a discounted price, banking in the difference, decreasing the latter's supply, and driving the price up and back to par. However, do note that this form of arbitrage is complicated. To profit from this setup, arbitrageurs would need to install a crypto-trading bot like Hummingbot and execute a few programming commands.

To prevent the network from failing, Terraform Labs created its blockchain using a proof-of-stake (PoS) protocol. This means that LUNA holders themselves pledge their coins to validate transactions on the network. In this specific context, it incentivizes LUNA holders to stake their coins in pools instead of selling them or swapping for other cryptos, which would lead to the catastrophic shrinking of TerraUSD collateral. An estimated $11.5 billion out of $14.078 billion LUNA coins are currently in these staking pools. 

Terra is quickly becoming a front-runner in the lucrative decentralized finance (DeFi) market. More than $6.1 billion has been pledged for the project's protocols. These include the Mirror protocol that enables developers to create fungible assets for trading on its blockchain, backed by real-world assets such as stocks. Then there's the Anchor protocol, which incentivizes investors to lend out their TerraUSD for interest rates as high as 20% after factors like automatic restaking (reinvestment of interest back into the staking pool) are accounted for. 

The moon is the limit 

But that's not all of its potential. On Sept. 29, Terra's long-anticipated Columbus-5 network upgrade will go live with three protocol updates. For starters, it will accelerate the burning of LUNA tokens, that is, the removal of tokens from circulation to reduce supply. The network's algorithm automatically adjusts LUNA's total supply to adjust to the minting of new TerraUSD. The network burned more than $185 million worth of LUNA in August. 

Next, the upgrade will enable insurance for projects built by Terraform Labs, creating a safety net for users. It would also create a bridge linking Terra and Solana's blockchains to allow for the seamless transfer of TerraUSD to help build the latter's decentralized applications (dapps). Finally, Columbus-5 will authorize inter-chain communication between Terra and Solana, Cosmos, and Polkadot, further enhancing its network capabilities.

Overall, this is a promising and innovative cryptocurrency that you don't want to miss out on. But beware of the overall "buy the rumor, sell the news" mentality surrounding Columbus-5. It's best to wait until the upgrade's done before opening a stake.  

 

Zhiyuan Sun owns shares of Cosmos, Polkadot, and Terra. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Terra Luna Classic Stock Quote
Terra Luna Classic
LUNC
$0.00 (0.05%) $0.00
TerraClassicUSD Stock Quote
TerraClassicUSD
USTC
$0.02 (-5.53%) $0.00

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

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