Terra (LUNA) is Now More Investor-Attractive after the Columbus Upgrade, Here’s Why
Change is the only constant.
In crypto, this happens at dizzying speeds, and you can be left behind. Ethereum and Cardano might be development-active, but Terra is also up there given its ambitious goal and current adoption levels. The development wing is hard at work to make the stablecoins leveraging platform better, faster, and LUNA more attractive.
Towards that end, the highly anticipated upgrade of early this month, the Columbus, introduced new enhancements set to make the platform more rewarding for token holders and LUNA even more scarce.
Before diving deeper, it is best to understand that the Terra blockchain is one of the fastest, cheapest, and highly adopted in the sphere. Terra developers want to improve payment in the scene. The best way is to leverage a series of algorithmically adjusted stablecoins. These are digital assets existing within the interoperable, Cosmos-powered smart contracting platform, tracking the value of various fiat currencies and IMF's SDR.
The most prominent of those stablecoins, as you would expect, is UST that tracks the USD and is stabilized by LUNA, which is central at ensuring the peg is correct. Otherwise, the system can be run down if there are errors. LUNA primes the ecosystem's collateralization mechanism as a utility and a governance token for this fast-growing blockchain.
Therefore, as expected, the Columbus Upgrade had major ramifications to the core of the platform. Considering the interconnectedness of the blockchain's ecosystem, an improvement on one component—for example, on stablecoins—had a contagion effect on the system's utility token, in this case, LUNA.
With the activation of Columbus Upgrade, the development team wanted to stimulate the demand for its stablecoins while also increasing the scarcity of LUNA. The effect on the latter immediately reflected on its price.
Thus far, the coin has surged more than 10X since the beginning of the year, and analysts expect more gains in the months to come. The demand for Terra stablecoins would be enhanced by opening up the network to other networks and dApps.
Based on this, the Columbus Upgrade is important for several reasons for the layer-1 blockchains:
1. Incorporating Cosmos' Inter-Blockchain Communication (IBC) Protocol
The Columbus Upgrade did precisely that.
Notably, integrating the Inter-Blockchain Communication (IBC) protocol—or the Stargate—by Cosmos means that the Terra blockchain is now interoperable.
The IBC's objective is to create an interconnected ecosystem of blockchains—an internet of blockchains. This solution is presently active and used by a dozen of projects.
Therefore, the Terra blockchain can easily link up with IBC-enabled blockchains like Solana and Polkadot with this integration.
In the coming days, Ethereum will also integrate IBC.
This is because Terra is now more useful and functional as the base is more expansive and the dApp range more profound.
The eventual bridging to Ethereum would make IBC more attractive, drawing even more users, spurring the demand for Terra blockchain-based stablecoins.
2. LUNA Coins are Scarcer
Additionally, after the Columbus Upgrade, LUNA coins are scarcer.
The Terra blockchain is a dual token system where LUNA plays a critical role in governing stablecoins like UST. The more the demand, the more LUNA minted, and vice versa.
Every minting activity before this upgrade saw LUNA coins transferred to the community pool. That means supply wasn't affected but transferred.
Perhaps inspired by Ethereum's EIP-1559, Terra developers decided to burn all LUNA coins used for minting instead of transferring them to a community pool.
Experts believe that this would directly affect LUNA pricing as supply will continuously shrink, reflecting the mint rate of UST stablecoins.
Gradually, this makes LUNA coins deflationary and, thus, a desirable asset.
3. Higher Yields for LUNA Stakers
The network developers, following the enhancement, also decided to reward users that delegate their LUNA coins to validators.
There were tweaks on how fees generated from Terra Station trading were channeled.
Earlier on, these were burnt.
However, to boost and encourage LUNA users to delegate and subsequently make the platform even more robust, fees won't be burnt.
Instead, they will be distributed as an extra reward to LUNA delegators.
4. Paving the Way for the Solana Connection
Most notably, despite the IBC incorporation, the Columbus Upgrade set the ball rolling for the next significant improvement: the linkage to Solana via the Wormhole bridge.
While there is interoperability, the direct link to the rapidly growing Solana blockchain makes UST—and Terra stablecoins by extension—more functional and, as expected, on-demand.
Since LUNA is at the heart of minting, the enhancement would provide the necessary tailwinds to make the token the most valuable DeFi protocol, surpassing Uniswap.
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Great article!! I just have to add though, in terms of the IBC which is a Cosmos Development, as far as I know, Solana's Wormhole only connects SOL to ETH via EVM and Polkadot is not connected to the IBC at all, rather they have 'polkaslots' which are limited to 100 slots and only connect to eachother within DOT. In regards to ETH connecting to the IBC, there is a project within the Cosmos ecosystem called EVMOS which will shortly be linking the IBC to the existing EVM. However this is still in development and has no firm launch date nor good details as to how that is going to work. As far as I can tell tokens linked to other blockchains via EVM require to be wrapped whereas IBC connected chains can transfer sovereign tokens without the need for wrapping, hence the incredible fast speeds and infinite scalability of the IBC as now projects can have their own sovereign chains without the need for reliance on a L1 chain for reliability and functionality. So I'm still unsure as to how the IBC to EVM bridge will function
Great project 🎉🚀 ❤️