Securities.io is committed to rigorous editorial standards. We may receive compensation when you click on links to products we review. Please view our affiliate disclosure. Trading involves risk which may result in the loss of capital.
Table Of Contents
May 12, 2022 Update: Due to the high potential for a collapse of the entire Terra (LUNA) ecosystem we recommend that investors undertake serious due diligence before purchasing this digital asset. There is a high probability that this token will eventually be delisted from major exchanges and that the price will drop to $0.00. Below is our original article for informational purposes.
Terra is a blockchain protocol that uses stablecoins — cryptocurrencies that are backed by real-world assets, in this case, fiat currencies — in order to power global payment systems that have the advantage of featuring stable prices. The project was designed to combine price stability with the wide adoption of fiat currencies with the censorship-resistance of Bitcoin. However, unlike Bitcoin, it offers affordable, fast settlements.
The project also has a native cryptocurrency called the LUNA token which is used to stabilize the price of the project’s stablecoins. In addition to that, those who hold LUNA are also allowed to submit proposals and vote on the proposals submitted by other users, thus helping decide the future of the project.
Unfortunately, despite being the leading cross-chain protocol in the industry, Terra’s token may feel somewhat limited. And, with the DeFi trend still going strong after emerging in 2020, many of the LUNA holders wanted to see the token receive some additional use cases. The easiest way to do so would be to go to the network that has the highest selection of DeFi protocols available and launch a wrapped version of LUNA there.
With the network with the most DeFi protocols being Ethereum, this was the network that was chosen and Wrapped LUNA Token (WLUNA) was born.
What Problems Does Wrapped LUNA (WLUNA) Solve?
Due to the limitations of the Terra ecosystem and limited use cases of the original LUNA token, Wrapped LUNA Token (WLUNA) emerged to attempt to solve some of these issues by leading it to a different blockchain.
Grants access to the Ethereum network
As mentioned, the original LUNA token offers limited use cases within its own ecosystem. However, through the process of tokenization, it is possible to create new tokens that represent another asset, and by applying this process on LUNA itself, Wrapped LUNA Token was born. Called WLUNA, the token was launched on Ethereum’s network as one of the ERC-20 coins — a utility coin that allows LUNA to reach out to one of the biggest ecosystems in the cryptocurrency industry.
Ensuring WLUNA’s value
As mentioned WLUNA is not a standalone cryptocurrency, but it is also not LUNA itself. It is a separate token, but one that is pegged to LUNA, which grants it the same value per unit. In a way, WLUNA is not unlike stablecoins. Every WLUNA token’s price will always be equal to 1 LUNA. The only thing that prevents it from being a stablecoin is the fact that LUNA itself is, as a cryptocurrency, volatile.
Benefits of Wrapped LUNA Token (WLUNA)
So, what can you actually do with WLUNA? What is the benefit of having the token launched on Ethereum? There are a few benefits that wrapped LUNA Token can offer, such as:
Participate in DeFi protocols
By launching LUNA on Ethereum’s network in the form of WLUNA, users get to use Ethereum’s DeFi sector. Ethereum is the birthplace of DeFi, and it features the largest DeFi ecosystem in the entire cryptocurrency industry. As such, it offers all kinds of protocols that allow users to participate in different activities, from staking, lending & borrowing, yield farming, liquidity mining, and more.
Doing this essentially means that users will lock their tokens in one of many DeFi protocols and leave them at the project’s disposal. They can still withdraw their tokens at any time, but if they keep them locked for a certain period, depending on the project, they can receive rewards in exchange for offering their tokens. In other words, this is a good way to use your money to make more money.
Use idle assets on another chain
A lot of crypto investors tend to buy their coins and hold them for weeks, months, or even years, without ever selling them or using them for any purpose. These are generally considered to be idle assets. However, DeFi has emerged for these exact situations, granting users the ability to lock away these idle assets inside DeFi protocols, as discussed above, and use them for earning.
With Ethereum being the blockchain with the largest count of DeFi protocols and different available options, exchanging LUNA for WLUNA and using it in Ethereum’s DeFi ecosystem can bring numerous advantages and opportunities.
Switch between blockchains with ease
By using a WLUNA partner, users can exchange 1 LUNA for 1 WLUNA at any time, and also switch them back instantly whenever they feel like returning the tokens to their original blockchain. There is no need to go through exchanges, pay expensive transaction fees, and alike. This simple software lets users hop from one chain to the other and easily lock their tokens in DeFi protocols on Ethereum, or return them into the LUNA form in order to cash out, or simply lock them up in their initial shape.
How Does Wrapped LUNA Token (WLUNA) Work
WLUNA is an Ethereum-based ERC-20 token that represents Terra (LUNA) on a different blockchain. As the original LUNA token is locked within its native blockchain, the only way for users to use it elsewhere is to lock up some of the original LUNA tokens and mint Wrapped LUNA Tokens on a different chain, in this case, Ethereum’s.
In doing so, users gain access to all the benefits that Ethereum’s network has to offer, such as a rich selection of different DeFi protocols, the Uniswap DEX, as well as a highly secure network that ETH itself uses.
How to Buy Wrapped LUNA Token (WLUNA)
Wrapped LUNA Token (WLUNA) is available on the following exchanges:
Uniswap is a decentralized exchange (DEX) for swapping tokens, which uses an automated market maker (AMM) model that allows users to trade against a liquidity pool.
Wrapped LUNA Token (wLUNA) – LUNA outside of Terra
If you have a LUNA investment and you don’t simply wish to watch it lie idly in your wallet, consider taking it to Ethereum’s network by minting wLUNA. The Ethereum-based version of the token can open the door to many new possibilities and opportunities, which can also help you make money without having to do anything. Your LUNA tokens will still grow in value over time, just as they would if you simply kept them locked away in your private wallet.
But, if you lock them up inside smart contracts used by DeFi protocols, they can grant rewards while you wait for their value to grow, which would essentially mean that you get to earn twice from simply owning the tokens.
Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.
You may like
Investing In Solana (SOL) – Everything You Need to Know
Investing in Hedera Hashgraph (HBAR) – Everything You Need to Know
Investing In Avalanche (AVAX) – Everything You Need to Know
Investing in Algorand (ALGO) – Everything You Need to Know
Investing In Polkadot (DOT) – Everything You Need to Know
Investing In Cardano (ADA) – Everything You Need to Know