Are we buying Terra (Luna)? [Originally Members Only]
Is Terra Luna Halal?
Check out our halal report on luna here!
What is Terra Luna?
Terra Luna is primarily a platform for building decentralized stable coins. It also has smart contract capabilities and aims to become a worldwide eCommerce platform.
Terra builds stable coins using the LUNA token to balance the price of the stable coins. This happens by either burning LUNA or minting more, in order to control the supply and by extension, the price.
The stable coins cannot be minted without burning the equivalent value in LUNA. This should cause LUNA to increase in value as more stable coins are minted. At least that’s the idea.
Terra Luna vs. Olympus DAO
Terra Luna and OHM are both trying to tackle the same problem: creating a decentralized stable coin that enables more practical use cases while creating value for their respective coin holders.
How they achieve this is where these two projects diverge…
Blockchain vs. DAO
OHM is a DAO (Decentralized Autonomous Organization) while LUNA is its own blockchain.
This means OHM is subject to the fees of whichever blockchain it resides on. Currently, this is Ethereum, which has an average fee of about $30 per transaction.
Luna on the other hand, is in complete control of its fees since it controls the infrastructure.
On the flip side of the stablecoin, OHM is relieved from having to build its own smart contract network. It simply relies on already existent blockchain networks.
Luna does not have this luxury.
Tied Currency vs. Treasury
LUNA is built to host a number of stable coins that are tied to the value of real-world fiat currencies like the US dollar, Euro, and Chinese Yuan among a few others.
The project achieves this by having an elastic monetary policy using burning and minting to bring stability to the currencies it hosts on the Terra Luna network.
On the other hand, the native currency OHM is built to be the stable coin of Olympus’s network. Its price is not tied to any specific real-world currency, rather, it is backed by a treasury of assets, and its price is stabilized by the issuance of bonds.
Are we buying?
LUNA’s stable coins are growing in popularity as people are looking for more decentralized alternatives to coins like USDT and USDC. There is currently a 10 billion dollar market cap on Terra’s US dollar equivalent UST.
It will be interesting to follow its development as more alternatives begin to develop within the space.
While Luna attempts to make stablecoins more centralized, there does seem to be a glaring hole in this effort since the currencies they are trying to be stable against, like the U.S. dollar and Chinese Yuan, are themselves centrally controlled. So what value are they adding? It seems Luna’s stablecoins will have little utitlity when the central banks of the world start issuing their own digital currencies.
Another concern we have about Luna is their reliance on building Terra’s smart contract platform to complement their project. Until they implement their bridge protocol, which allows UST and other stable coins to work on other blockchains, we will likely not see many use cases outside of their network.
Today, there are very few DApps that drive usage to Terra Luna’s smart contract network so the only real use case for it is through centralized exchanges.
Terra Luna is competing in two separate highly saturated markets within the space: stable coins, and smart contracts.
In order to succeed, they need to bring something very unique to both.
We have yet to establish an exceptional value-add for Terra and consequently don’t feel inclined to invest just yet.