Terra Luna Quick Facts:

Founders: Daniel Shin and Do Kwon

Date Founded: April 2019

Current Developers: Terraform labs 

Max Supply: None

Pre-mined Supply (coins that were created before the currency is publicly launched): 385,000,000

Current circulating supply: 361,811,227 LUNA coins

Practical Islamic Finance Rating: Comfortable

Intended Purpose

According to Terra’s founders, Terra Luna is a network that allows for the creation of stable coins in a decentralized fashion that “is both price-stable and growth-driven.” 

They achieve this by using an elastic money supply, balancing the price of the stable coins by introducing supply when the price rises or burning it as the price goes down.

The stable coins cannot be minted without burning the equivalent value in LUNA. This allows LUNA to increase in value as more stable coins are minted.

Terra strives to become a global e-commerce platform that allows for smart contracts and various DeFi applications. 

Current Utility

Terra Luna currently hosts the most widely used decentralized stable coin, UST, with a market cap of over 9 Billion alongside a few other stable currencies.

As of right now, there are a few Defi applications that already exist on the network but there is no widespread adoption similar to that of Ethereum.

Practical Islamic Finance concludes:

Terra Luna’s intended purpose as a decentralized stable coin platform with smart contract capabilities is not inherently haram.

Is Terra Luna Linked to Interest-Bearing Debt?

The increased utility of Terra Luna allows for the possibility of applications that partake in interest-bearing activities but these are built on top of the network rather than an inherent part of it. 

Another point of concern might be the governing algorithms that keep the stable coins at their current prices. 

The act of keeping a currency at a stable price by controlling the supply is not inherently linked to riba unless they use a system of borrowing and loan financing to either stimulate or reduce the money supply. 

Since Terra uses the burning and minting of coins to control the money supply, it does not rely on riba in order to operate.

Practical Islamic Finance concludes:

Despite the presence of interest-bearing activities that occur on Terra Luna’s blockchain, these are not inherent to the functionality of the blockchain itself. 

What is Terra Luna’s ESG Rating?

Governance refers to the incentive structures governing a cryptocurrency.

Decentralization

Generally speaking, decentralization makes it difficult, and sometimes impossible, for a corrupting force to affect all points of influence simultaneously.

To determine Terra Luna’s level of decentralization, we look at three different metrics: nodes, distribution of staking, and distribution of funds.

Nodes

A node is a computer connected to the network that holds the blockchain data for others to be able to use and download. This requires that all the blocks ever produced be downloaded.

Terra Luna has around 280 nodes as of December 2021.

Distribution of Staking

The more staking power an entity has, the more leverage it can exercise over the ecosystem. Commonly called a 51% attack, if one actor controls over half of the block creation, they can take control of the currency itself.

A proof-of-stake system works by using the coin itself to act as a “vote” that controls which node will create the next block. The more coins associated with a node, the more power it has to create blocks.

As of December 2021, the largest Terra Luna staking node is Orion.Money who holds 7.85% of the total voting power, with Staking Fund taking second with 7.36%.

Distribution of Funds

Currently, the largest holder of Terra Luna is TerraForm Labs with over 432 million coins. This amounts to about 1.37% of the total supply. 

Environmental

Terra Luna uses a proof-of-stake system that only uses the required computations in order to operate. This has a much smaller impact on the environment per transaction compared to something like bitcoin. 

Social

Terra Luna enables users to access stable coins and avoid the risk of fraud or mismanaged funds associated with centralized stable coins. 

It also offers the ability for users to avoid the volatility of cryptocurrency markets. This stability enables more practical use cases all while creating value for LUNA coin holders.

Practical Islamic Finance concludes:

Though Terra Luna is not as decentralized as Bitcoin or Ethereum this is not prohibited from an Islamic perspective. 

Overall we find Terra Luna’s benefits and potential for good to be substantial which greatly outweigh the comparatively little costs associated with running its network.

Comfort Rating

From Terra Luna’s intended purpose, lack of any structural reliance on riba, and ESG impact, Practical Islamic rates this cryptocurrency as:

Comfortable to invest in from a Halal perspective.

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Sources

Terra Luna Coin Market Cap

Terra Luna White Paper

LUNA Validator Statistics

LUNA Validator Information

LUNA Largest Wallets