Introduction to Terra and Luna
Terra is a stablecoin of unlimited supply and is being expanded and contracted through multiple stabilizations schemes.
Variable taxation fees adjust depending on Terra’s price. If Terra’s price is falling due to oversupply, transaction fees will rise. Iterative DMMD, similar to TCP's AIMD network balancing algorithm, is used for throttling the variation.
LUNA token is a fixed supply variable price token, which has the utility of being staked to the stabilization fund called the Stability Reserve. Stakeholders are also entitled to participate in the democratic process of governance at the protocol level. Taxes collected from Terra transaction fees end up as rewards, in the likely form of dividends.
In case of market extremes:
Market shocks will be handled with the liquid fiat/crypto reserve including the Luna token reserve (the value of which is always maintained to be above the circulating Terra supply) is used to buy back Terra and burn it. The reserve is resupplied during oversupply when it collects higher tax rates.
Extreme undersupply will be solved by minting new Terra and selling it to exchanges, where received funds will be used to reinforce the reserve, and the surplus distributed through a method so-called Decentralized Fiscal Spending.
