How does Luna Terra work?

Luna Terra works with stablecoins and Luna which help to allow people to use cryptocurrency as money while still remaining decentralized. The Terra protocol uses a proof of stake model which provides validators to maintain the Terra blockchain.  

Luna Terra Introduction 

Luna is the native coin for the Blockchain Terra. Terra is a blockchain that aims to provide programmable money to the internet. There are many protocols that work on Terra including Anchor(works like a bank) and Chai(used for payments). 

Luna is a coin that is usually used for governance and mining. The Terra blockchain uses stablecoins which are coins that track the price of fiat currencies such as the United States Dollar. You can also Stake your Luna on Terra. 

What is Terra?

Terra is a blockchain that aims to create a decentralized permissionless ecosystem of finance. The idea of Terra is to create programmable money that is also decentralized.

Programmable money first came about with the Ethereum blockchain and also people to create “smart contracts”. A smart contract allows you to program an agreement between two parties.  

How Terra works

The Cryptocurrencies of Terra

The system of Terra works with stablecoins and a governance/mining token called Luna.


The ecosystem of Terra uses Stablecoins as a form of money on the Terra Blockchain. A stablecoin is a coin that is pegged to a fiat currency like the dollar. 

The UST is the stable coin used on Terra that tracks the price of the United States Dollar and the KRT coin tracks the price of the Korean Won. 

The reason we have stablecoins on the Terra blockchain is to allow us to make day-to-day transactions without the volatility of cryptocurrencies.

When we have a coin that has a stable price, we can use this currency as money to buy things and to use regular financial tools like loans and insurance. 

The stable coins are not backed by United States Dollars but rather a coin called Luna. (Luna also has special reserves of Bitcoin) 

Luna Coin

The Luna coin is used for governance, mining, and to help keep the price of stablecoins stable. 

In terms of how stablecoins work, it is important to know that the price of UST can go higher or lower depending on supply and demand. If the price of UST goes down then some Luna coins can be sold for slightly more than a dollar so the stablecoin price can remain close to the USD. If the price of UST goes up, then more Luna will be minted and swapped for UST.

You can understand better how Luna and Stablecoins work together by watching this video:

Luna holders can also engage in the governance issues on the Terra Blockchain. They can vote on things like proposing changes for transaction fees and other taxes.

The Protocol of Terra

The blockchain Terra allows many projects to be built using the Terra system. These include many projects that offer decentralized finance. The most important of these are Chai and Ankr which provide a payments system(Chai) and banking services(Ankr). These services are very popular in South Korea. 

Proof of Stake Model

The Terra blockchain operates with a proof of stake model to help validate transactions on the blockchain. A proof of stake model allows people who stake Luna to become validators and thereby check on transactions to make sure the system works well. 

The proof of stake model is better than a proof of work(like Bitcoin) model because it uses significantly less computing power.  

How does the Terra Luna coin work?

The main thing that Terra does is work in tandem with stablecoins so that they remain at a stable price. The reason people buy Luna is because they think the price of luna will be higher in the future. 

As explained above, people can make money with Luna by selling it for UST and they can also make money by staking it. Staking a coin is a way to make money from transaction fees from payments made in the Terra system and by providing liquidity. 

What is Wrapped Luna and why do we need it?

Wrapped Luna is a tokenized version of Luna that can be used on other blockchains. Wrapped tokens are usually created to enhance interoperability so that Luna can be used on other blockchains such as the Ethereum blockchain.

How do you earn with Terra Luna?

One of the best ways to earn with Terra Luna is by staking it. People who stake Luna can earn anywhere from 8%-20% annual yield just by staking it. You can also earn money buying Luna and hoping that the price of Luuna goes up. 

Who is behind Terra Luna?

Terra was founded by Do Kwon and Daniel Shin. Daniel Shin is the current CEO of the payments protocol Chai and Do Kwon is the CEO of Terraforma labs.