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## LUNA, UST, and The Terra Blockchain
<br>
* LUNA is the native utility token of the Terra network. Since Terra is a proof-of-stake (PoS) chain, holders can stake their LUNA in order to help secure the network and earn further LUNA rewards.
* Terra is both a stablecoin protocol and an L1 blockchain.
* The network is built on Cosmos SDK using Tendermint Proof-Of-Stake (PoS) as its consensus mechanism, where validators bond (stake) LUNA in order to secure the network. 
* Terra recently became IBC compatible, enabling it to facilitate swaps between all the different blockchains in the Cosmos ecosystem. 
* UST is an algorithmic, dollar-pegged stablecoin. To mint UST, a user must burn a commensurate amount of LUNA (i.e. $1:$1). To redeem LUNA, a user will have to similarly burn an equal of UST. This means that UST is not backed by an external collateral asset, but rather relies on market incentives to maintain stability. 
* Let’s say the price of UST is $1.01, trading above its $1 peg. This means that demand for the stablecoin is exceeding supply, which the protocol calls “expansion.” In this situation, in order to decrease the price of UST, an arbitrageur is incentivized to burn $1 of LUNA in order to mint new UST in order to capture the $0.01 difference between the target peg and the current peg. 
A similar arbitrage opportunity also exists when UST is trading below its peg, meaning supply for the stablecoin is outweighing demand. If the price of UST was at $0.99, an arbitrageur would be incentivized to burn UST to mint $1 of LUNA, reducing its supply, thereby helping to raise the price of UST back to the $1 peg and pocketing the difference.
* Another key insight to be gleaned from this mechanism is that it ties the value of LUNA to the demand for UST. All else equal, as demand for UST increases, more LUNA will be burned, which should serve to place upward pressure on the price.
* One of the most successful ways in which Terra has managed to increase the utility and usage of UST has been Anchor. A money market on Terra and now Avalanche, Anchor allows UST holders to deposit their holdings to earn a fixed yield that currently sits at 19.46% APY. Users can also collateralize the staking derivatives of L1 assets, currently bLUNA, bETH, bATOM, and wasAVAX, to borrow the deposited UST.