About TerraKRW (KRT)
TerraKRW (KRT) price-volatility of cryptocurrencies is a well-studied problem by both academics and market observers (see for instance, Liu and Tsyvinski, 2018, Makarov and Schoar, 2018). Most cryptocurrencies, including Bitcoin, have a predetermined issuance schedule that, together with a strong speculative demand, contributes to wild fluctuations in price. Bitcoin’s extreme price volatility is a major roadblock towards its adoption as a medium of exchange or store of value. Intuitively, nobody wants to pay with a currency that has the potential to double in value in a few days, or wants to be paid in a currency if its value can significantly decline before the transaction is settled. The problems are aggravated when the transaction requires more time, e.g. for deferred payments such as mortgages or employment contracts, as volatility would severely disadvantage one side of the contract, making the usage of existing digital currencies in these settings prohibitively expensive.
TerraKRW (KRT) At the core of how the Terra Protocol solves these issues is the idea that a cryptocurrency with an elastic monetary policy would maintain a stable price, retaining all the censorship resistance of Bitcoin, and making it viable for use in everyday transactions. However, price-stability is not sufficient for the wide adoption of a currency. Currencies inherently have strong network effects: a customer is unlikely to switch over to a new currency unless a critical mass of merchants are ready to accept it, but at the same time, merchants have no reason to invest resources and educate staff to accept a new currency unless there is significant customer demand for it. For this reason, Bitcoin’s adoption in the payments space has been limited to small businesses whose owners are personally invested in cryptocurrencies.
TerraKRW (KRT) belief is that while an elastic monetary policy is the solution to the stability problem, an efficient fiscal policy can drive adoption. In addition, the Terra Protocol offers strong incentives for users to join the network with an efficient fiscal spending regime, managed by a Treasury, where multiple stimulus programs compete for financing. That is, proposals from community participants will be vetted by the rest of the ecosystem and, when approved, they will be financed with the objective to increase adoption and expand the potential use cases. The Terra Protocol with its balance between fostering stability and adoption represents a meaningful complement to fiat currencies as a means of payment and store of value.
TerraKRW (KRT) Storage Key Points
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Multi-fiat Peg Monetary Policy
A stable-coin mechanism must answer three key questions
How is Price-Stability defined?
Stability is a relative concept; which asset should a stablecoin be pegged to in order to appeal to the broadest possible audience? •
How is Price-Stability Measured?
Coin price is exogenous to the Terra blockchain, and an efficient, corruption-resistant price feed is necessary for the system to function properly. •
How is Price-Stability Achieved?
When coin price has deviated from the target, the system needs a way to apply pressures to the market to bring price back to the target.
Defining stability against regional fiat currencies
The existential objective of a stable-coin is to retain its purchasing power. Given that most goods and services are consumed domestically, it is important to create crypto-currencies that track the value of local fiat currencies. Though the US Dollar dominates international trade and forex operations, to the average consumer the dollar exhibits unacceptable volatility against their choice unit of account. Recognizing strong regionalities in money, Terra aims to be a family of cryptocurrencies that are each pegged to the world’s major currencies.
Close to genesis, the protocol will issue Terra currencies pegged to USD, EUR, CNY, JPY, GBP, KRW, and the IMF SDR. Over time, more currencies will be added to the list by user voting. TerraSDR will be the flagship currency of this family, given that it exhibits the lowest volatility against any one fiat currency (Kereiakes, 2018). TerraSDR is the currency in which transaction fees, miner rewards and stimulus grants will be denominated. It is important, however, for Terra currencies to have access to shared liquidity. For this reason, the system supports atomic swaps among Terra currencies at their market exchange rates
Measuring Stability with Miner Oracles
Since the price of Terra currencies in secondary markets is exogenous to the blockchain, the system must rely on a decentralized price oracle to estimate the true exchange rate. We define the mechanism for the price oracle as the following :
For any Terra sub-currency in the set of currencies C = TerraKRW, TerraUSD, TerraSDR… miners submit a vote for what they believe to be the current exchange rate in the target fiat asset.Every n blocks the vote is tallied by taking the weighted medians as the true rates.
Some amount of Terra is rewarded to those who voted within 1 standard deviation of the elected median. Those who voted outside may be punished via slashing of their stakes. The ratio of those that are punished and rewarded may be calibrated by the system every vote to ensure that a sufficiently large portion of the miners vote.
Miners Absorb Short-Term
Terra volatility The Terra Protocol runs on a Proof of Stake (PoS) blockchain, where miners need to stake a native cryptocurrency Luna to mine Terra transactions. At every block period, the protocol elects a block producer from the set of staked miners, which is entrusted with the work required to produce the next block by aggregating transactions, achieving consensus among miners, and ensuring that messages are distributed properly in a short timeframe with high fault tolerance. The block producer election is weighted by the size of the active miner’s Luna stake. Therefore, Luna represents mining power in the Terra network. Similar to how a Bitcoin miner’s hash power represents a pro-rata odds of generating Bitcoin blocks, the Luna stake represents pro-rata odds of generating Terra blocks. Luna also serves as the most immediate defense against Terra price fluctuations. The system uses Luna to make the price for Terra by agreeing to be counter-party to anyone looking to swap Terra and Luna at Terra’s target exchange rate. More concretely