Over the past year, the Terra ecosystem has come to host hundreds of DApps. Let’s take a closer look at the role its native token, LUNA, played in making this growth possible.
tackled Terra’s ecosystem growth in 2021 and how it got to hundreds of decentralized applications from just two at the beginning of last year.
Take the scenario of 1 TerraUSD trading above the $1 peg. LUNA holders, in this case, can swap $1 worth of LUNA using the market swap feature of Terra Station and sell it for 1 UST. Then, users can sell this for its equivalent dollar value and profit from the difference. In this regard, the protocol effectively decreases the supply of LUNA and increases the supply of UST, which, with enough volume, could eventually pull it back down to $1.
For instance, when mining rewards are decreasing, indicating a contraction period for Terra's economy, the protocol kicks up the LUNA burn rate and increases the fees. This makes LUNA stakers less inclined to abandon staking LUNA altogether.
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