Behind these rises, there is a hidden reason: the creators of the project developed a system to “burn” digital assets to prevent their price from falling. The Terra blockchain was created by a South Korean firm called “Terra Labs” with the aim of creating a better digital financial system outside of financial institutions and fintechs.
With this blockchain, they created a decentralized payments application called “Chai”, which is used today in South Korea to buy and sell physical items. In addition, they created Mirror, a decentralized finance protocol that serves to create “tokenized corporate actions”; and Anchor Protocol, another decentralized protocol in which investors allocate capital and generate returns of up to 20% per year.
In all the aforementioned financial services, the queen is “Luna”, the official cryptocurrency of the Terra ecosystem, which is trading at around $ 70. But it is not the only cryptocurrency on the Terra blockchain: there are also stable cryptocurrencies (known in English as stablecoins) that always maintain the same value of US $ 1 and are not volatile.
Currently, the most popular cryptocurrency in the project is TerraUSD (better known by its acronym UST); It is followed by other stablecoins such as TerraSDR (SDT), TerraKRW (KRT) and TerraMNT (MNT). All these cryptocurrencies and Terra protocols are decentralized, that is, they do not depend on any government or traditional financial entity; therefore, you do not have to ask for any permission to move capital on the blockchain.
Finally, the commissions (called “gas”) for operating on Terra are also low, compared to other networks such as Ethereum. When the crypto market falls, investors have several options: not to sell a penny of their portfolio and endure the decline, continue to buy stable cryptocurrencies paired one-for-one with the dollar to invest in other volatile assets and take advantage of their low price or sell all your investments for “fear” that it continues to decline.
In the case of the Luna token holders, they decided to take refuge in the project’s stable cryptocurrency, called UST. It is a cryptocurrency paired one to one with the US dollar that always maintains its value.
When investors invested their Luna tokens in the UST cryptocurrency, the project developers began burning Luna in order to reduce supply and currency. With this “burning” of assets, they managed to stabilize and raise the price of the cryptocurrency. For this reason, it was the only asset that rose in price amid the sudden drop.
Additionally, as the protocol burns Luna cryptocurrencies, the UST stablecoin will maintain its stability and one-to-one parity with the US dollar. “Terra has a supply of 1 billion tokens. If this number is exceeded, Luna burns until it returns to the balanced level of supply. New Luna tokens are mined through the protocol algorithm, as needed, to maintain the price of Terra stablecoins, “explained Coinmarketcap.
To date, the protocol has burned around US $ 4,000 million in Luna and, according to the same source, the circulating supply is around 383,509,658 digital currencies.
Source From: Ambito
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