This article was written before the Luna Crash.
Terra is a decentralized finance (Defi) protocol that underpins a suite of algorithmic stablecoins, including the highly successful TerraUSD (UST).
In this guide, we will focus on the process of staking LUNA, which is the native governance asset on the Terra blockchain instrumental in stabilizing the value of the Terra-based stablecoins.
Can Luna Be Staked?
Yes, Luna can be staked for passive returns. The Terra blockchain is based on a Delegated Proof of Stake (DPoS) consensus mechanism, which uses the Cosmos SDK.
Blockchain networks have two main aspects that require input from the community: governance and transaction validation. There are two ways of implementing a DPoS system.
The first is where the stakeholders outsource both of their rights to a delegate, while the second one is where a single role is delegated (transaction validation).
With Terra Luna, stakeholders only delegate the verification role, but they still get to be directly involved in the governance of the network. This setup is important as it gives a voice to every member of the community who holds LUNA coins.
Staking has several benefits compared to a mining algorithm such as PoW that is used by Bitcoin, Ethereum and most other leading blockchains. These benefits are:
- Staking reduces centralization – Terra allows anyone holding LUNA coins to participate in the governance of its network, thereby increasing the decision-making base to a broader audience;
- DPoS is more scalable – Terra can process about 10,000 transactions every second (TPS). Compare that to Bitcoin and Ethereum that can only process about 5 and 15 TPS, respectively;
- Staking allows participants to earn passive income – delegators on the Terra network can share in the rewards by their delegates from transaction validation.
Terra is among a group of third-generation blockchains using delegated staking to achieve consensus due to its potential to enable them to scale far much better than their mining counterparts.
Other projects that have implemented delegated staking include Tron, EOS and Tezos.
Also read our comparison of Luna and Solana as two leading third-generation blockchains.
What Makes Terra Luna Special?
Terra Luna is special for several reasons. It was launched in 2018, nine years after Bitcoin, so the project developers had several years of lessons to pick up from Terra predecessors.
One of the biggest deterrents to using digital assets as a replacement for conventional money was their market volatility.
Terra Luna was created as a solution to market volatility. The platform is designed to issue algorithmic stablecoins based on fiat currencies such as the USD, GBP. JPY and EUR.
By having these digital assets tracking the value of traditional currencies, they can thus introduce the other benefits of using blockchains, such as cost-effectiveness, convenience and inclusivity.
Being one among a group of stablecoin issuers, Terra differentiates itself from competitors by being a protocol for issuing multiple coins.
Most of its peers, such as Tether (USDT) and the USDC (USD Coin), do not have their protocols but instead are built on host protocols such as Ethereum.
Is Luna Worth Staking?
Yes, LUNA is worth staking. In fact, LUNA is currently among the leading cryptocurrencies by total value stake (TVL) because:
- It has a high annual reward ratio (APY) to its stakeholders and validators;
- The ease of staking, especially for the delegators;
- It offers a unique proposition that is worth supporting.
Read our complete guide explaining whether staking crypto is worth it.
What Is Luna Staking APY?
Currently, LUNA stakeholders earn a 6.68% annual reward (APY). However, this figure goes to the validators or those that run validation nodes (also referred to as staking service providers.)
Delegators get charged an average of 10% from these validators reducing their reward ratio to 6.01%.
This reward ratio is still higher than most other staking projects making Terra a great option to stake for most investors.
Learn more: Terra Luna Vs Polkadot
How To Stake Luna?
Staking Terra is a simple and straightforward process, but before we show you how, you first need to acquire some LUNA to stake. Owing to its popularity (currently ranked among the ten most valuable digital assets by market cap), LUNA is available in most of the leading cryptocurrency exchanges, including:
- FTX, among others.
Once you get some LUNA tokens, you need to store them on a self-custody wallet such as the official Terra Station wallet. Terra Station is available as a desktop, mobile (iOS/Android) and chrome extension web wallet.
Start by downloading and installing whichever version appeals to you. Create a wallet account and back up your 24-word recovery phrase, then transfer the tokens you bought off the exchange to your wallet.
Now that you have LUNA within your Terra Station wallet, follow these steps to stake it:
- Open your Terra Station wallet, log in and navigate to the staking page by clicking on the [Stake] button on your left-hand navigation menu.
- On the stake page, scroll down to locate a favourite validator to whom you wish to delegate your coins.
- Click through on the title of a preferred validator to open the validator details page.
Check to see the commission rate (how much the validator will cut off your reward) and several other details about the validator such as their website, contact information, uptime, etc.
- Click on the blue [Delegate] button.
- Fill in the amount of LUNA you want to stake/delegate and remember to specify which coin you wish to use to pay for staking fees as shown below.
Note: Do not stake your entire balance. Always keep some coins in your wallet to pay for the transaction fees both for staking, unstaking and withdrawing rewards.
- Confirm the transaction by providing your wallet password and clicking the [Submit] button.
Congratulations! You have successfully staked your LUNA tokens.
Is Terra Luna a Layer 1?
Yes, Terra Luna is a layer one blockchain. It is a Defi protocol for issuing algorithmic stablecoins based on the Cosmos SDK. The network has only a single layer which is currently, sufficient enough to handle as many as 10,000 TPS, thus eliminating the need for a scalability layer.
Read more about Terra’s Layer 1 nature in our full guide on the topic.
Staking Terra Luna is as simple as detailed above. It does not have to get any complex. However, there are several other avenues you can opt to use that are more complicated.
We highly recommend sticking to the above process and safeguarding your assets.