Terra is an algorithmic stablecoin platform, operating on a Proof of Stake (PoS) blockchain infrastructure built with Tendermint.
LUNA is the token of the Terra platform and is used in the issuance of stablecoins (TerraSDRs), as a price stability mechanism, as well as for staking and network governance.
In order to stabilize the value of TerraSDRs with their respective pegged currencies, users can redeem LUNA tokens in exchange for TerraSDRs and vice versa.
Terra's stability mechanism depends on arbitrage activities by users. For instance, when the price of TerraKRW (TerraSDR pegged to the Korean Won) falls to 0.95:1.00 against the Korean Won in secondary markets, users can purchase 100 TerraKRW with 95 KRW on exchanges, and redeem these tokens on the Terra platform for LUNA tokens worth of 100 KRW. If the price of 1 TerraKRW goes above 1 KRW, users can purchase TerraKRW on the Terra platform and sell on exchanges for a profit.
The Terra protocol tries to achieve predictable rewards for network participants in all economic conditions - using transaction fees and the rate of LUNA burn (with an equilibrium supply of 1 billion LUNA) as levers to oppose changes in unit mining rewards.