The Luna Token

Luna logo

LUNA is the native staking token of the Terra network and is the foundational asset for the entire ecosystem.

LUNA has two core functions which are:

    • Ensuring the price stability of Terra stablecoins through its role in collateralizing the mechanisms
    • Providing incentives for the platform’s validators that ensure the security of the blockchain.

LUNA tokens are used for staking and mining stablecoins by burning, depending on the current rate of the cryptocurrency. Terra uses seigniorage, described by Robert Sams in his article in 2014, which provides flexibility thanks to algorithms. Stablecoins in Terra are not backed by anything and are produced only when the equivalent amount of LUNA is burnt. This allows not only creating stablecoins, but also hedging assets. For example, if the LUNA rate grows by 50% against the dollar, then 1.5 times more TerraUSD coins will be issued. Likewise, if the LUNA rate drops by 25%, then you can redeem more coins for UST.
-source: @danku_r

1. What is the LUNA token?

2. How does Terra work?