Asset prices on the cryptocurrency market have fluctuated wildly over the past week. Monday started out as a rather uneventful day. Tuesday and Thursday saw prices generally plummet, while Wednesday and Friday saw strong rallies. To say the least, the market has not followed any decisive short-term trends.
Amid the price swing, LUNA — the ninth-largest cryptocurrency on the market — pulled away from the large-cap bundle and recorded five consecutive green candles over the course of Monday through Friday. Indeed, its valuation inflated about 40%, from $48.9 to $68.5.
The fundamentals of Terra at stake?
Luna’s network, Terra, underwent its Columbus-5 update last fall. As such, the upgrade is gradually set to simplify Terra’s economic design and increase the value capture of LUNA HODLers based on UST’s growth. UST, in turn, is a stablecoin built on the Terra blockchain.
So basically, Terra doesn’t just use one asset, it uses two. And what is good for UST is obliquely good for LUNA. As an algorithmic stablecoin, UST leverages LUNA to maintain an almost equal value to the US dollar. LUNA, as Terra’s utility token, is minted when demand for UST is low and burned when demand for UST increases.
Prior to the update, whenever UST was minted, Terra Protocol would only burn a portion of the LUNA earned, and the rest would be diverted to fund various community projects. Due to the rapid pace of seigniorage generation, the Earth community pool and the oracle reward pool became overpriced. So, to fix this flaw and make LUNA HODLers benefit from it, Columbus-5 implemented the burning of all community funds.
So now, after the update, LUNA’s liquid supply has been decreasing due to increased burning and piles. Indeed, the asset gradually began to become deflationary. In addition, the adoption of UST has also been growing rapidly in recent times, becoming an advantage for the Earth ecosystem.
Highlighting the same in your research reports, market data providing platform messari observed,
“The increase in flaring has driven LUNA to become a radically deflationary asset and has improved its value capture based on UST growth.”
Also, very recently, Terra and the Luna Foundation Guard (LFG), a nonprofit designed to support the Terra network, announced a $1 billion LUNA token sale led by Three Arrows Capital and Jump Crypto. The LFG will use the funds to create a ‘UST Forex Reserve’.
Per Jump Crypto, Three Arrows and other buyers in the $1 billion sales would be subject to a four-year vesting period for LUNA tokens. This means that they cannot be dumped on the open market right away. To some extent, even this developer is expected to help create a supply crisis going forward.
1/ The long-awaited [REDACTED] 💎3 is here!
📣 Luna Foundation Guard (LFG) closed a $1 billion private token sale to establish a $UST Forex reserve denominated in $ BTC! 📣
— Terra (UST) 🌍 Developed by LUNA 🌕 (@terra_money) February 22, 2022
LUNA experiencing a 1,023.78% appreciation in valuation last year, and UST’s supply passing the $10 billion mark speaks volumes about how the Earth’s ecosystem has thrived. In fact, LUNA also deserves credit for being able to navigate the current difficult time alone.
So now, if things go ahead as planned, the value of LUNA will only increase further in the long run.