Terra Pros & Cons

Terra (LUNA) is an algorithmic Stablecoin protocol that provides a decentralized financial infrastructure for everyone to build on. It was started in 2018 by Terraform Labs, based in Seoul, South Korea designed to compete with traditional finance systems. Terra can be used to build cryptocurrencies with stable prices powered by their native token LUNA. The reason Terra's team has decided to focus on stablecoins is that they are most likely to be considered for real-life transactions. Terra already has a rich ecosystem of DApps like Mirror Protocol to create Digital Assets on Terra Blockchain, Anchor Protocol for DeFi services, payments apps like Chai & Memepay which are quite famous among its userbase in South Korea and Mongolia respectively.

If you want to know more about the basics of Terra Blockchain Protocol & LUNA Token then check out this detailed guide by @crypto-guides - What is Terra (LUNA) coin? - Terra Guide.

In This blog, we are going to look at some of the major PROs and CONs of Terra. In the end, I will try to explain whether you should buy LUNA in 2021 or not. Let's get started!

1. Stablecoin Market: Terra caters to the stablecoin market due to its high demand and convenience. They can easily be used to avoid market volatility and hence once can safeguard their investment. It provides Terra USD (UST) pegged to USD, Terra KRW pegged to Korean Won and Terra SDT based on the IMF’s Special Drawing Rights (SDR).
2. Decentralization: Terra is one of the best decentralized stablecoin. Terra USDT is a great alternative to Tether (USDT) or other stablecoins which are backed by reserves. DAI is now backed by 50% USDC, hence no longer as decentralized as UST. Since UST is non-collaztorized stablecoin, its price is adjusted via algorithm and burning of LUNA coins.
3. Interoperability: Terra Tokens functions across multiple blockchains hence users can easily transfer assets from one blockchain to another. Right now they are live on Ethereum and Solana and as per their website, more blockchains are coming soon.
4. Financial Framework: Terra provides a blockchain framework to create a digital financial system where banks and governments are not required. Mirror Protocol built the creation of fungible assets, “synthetics” and they track the price of other assets. They can be traded and used on Terra Network.
5. Transaction Speed & Cost: Terra blockchain can perform hundreds of transactions per second. Terra transactions are usually settled within six seconds & only cost a few cents to execute. Validators set a minimum gas fee to avoid spamming and reject transactions if they do not comply. Apart from that, taxes are charged on each transaction ranging from 0.1% to 1% capped at 1 TerraSDR. Both Gas Fees and Taxes are distributed among validators & LUNA Stakeholders
6. DeFi Yield: Anchor Protocol allows everyone to stake their Terra Stablecoins and earn up to 20% yields and this percentage does not move much hence stable yields. I don't know any DeFi platforms providing such returns on stablecoins.
7. Userbase: Terra is mostly popular in South Korea & Mongolia with Chai & MemePay App. It has 2M active users in payments apps which process $1B Transaction volume per year. Terra provides fast, cheap, reliable, secure cross border payments.

1. Adoption: Although Terra is getting popular in Asian region especially because of its huge userbase in South Korea, it will take a long way to expand in bigger markets like Europe, Americas and Oceania. Ethereum & its scaling competitors are much ahead when it comes to adoption.
2. Limited Nodes: Terra allows only 100 active validators or block producers which are keeping the network stable. Although it provides an edge in terms of speed of the transactions but it makes Terra less decentralized than other blockchains.
3. Regulations: Various governments all over the world have started preparing for CBDCs. Terra's stablecoins could get hit if the stringent laws are incorporated negating stablecoins. South Korea already faces strict crypto regulations and fears of centralization.
4. Roadmap: Terra's roadmap is not updated after Q2, 2021. That's a bummer because we cannot predict the future based on the information that is not available.

Terra wants to revolutionize the e-commerce payment system and enable a full-fledged financial system by becoming the biggest stable of stablecoins. Its decentralized, permissionless and interoperable features make it an ideal blockchain platform to support the digital economy. LUNA, the native coin of Terra, exploded in prices recently. It managed to make more than 2000% of profits in the past two months. Due to its gaining popularity, several listings and partnerships happened recently. Terra's ecosystem is expanding rapidly providing multiple E-Commerce, DeFi, and NFT related solutions.

In order to mint a new UST (Terra USD) Token, an equivalent amount of LUNA coin is burned and vice versa. In future, once Terra expands to a larger userbase, demand for LUNA will increase and a lot of burning will happen. You know how it works in e-commerce transactions. This can provide an upward push to LUNA's price.

Please note that investing in all cryptocurrenices is risky and considering the amount of uncertainty going around due to regulations and CBDCs LUNA may not be a fit investment for you unless you are based out of crypto friendly countries.

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