According to CoinGecko, Luna, the Terra blockchain’s native cryptocurrency, has increased by over 23% in the last seven days.
Luna, presently ranked No. 9 among the major cryptocurrencies by market capitalization, reached an all-time high of over $103 on Sunday and is currently trading at around $97. Luna began the year with a price of less than $1.
Bitwise Asset Management’s chief investment officer, Matt Hougan, tells CNBC Make It that the company has been on a tear. It has mainly remained unaffected by recent market turbulence, falling less and recovering faster than its peers.
Despite the enthusiasm surrounding Terra and its token Luna, financial experts consider cryptocurrencies volatile, speculative investments. So it’s vital to do your homework and understand the risks before investing. It can fall back down as rapidly as one reaches a new high.
It is a decentralized finance (DeFi) ecosystem that develops algorithmic stablecoins. Terraform Labs and its co-founders founded Terra in 2018, Do Kwon and Daniel Shin. Stablecoins, or cryptocurrencies tied to reserve assets like the US dollar, are commonly for DeFi lending and borrowing applications.
Terra, according to Hougan, is the “hot dot” among crypto’s cool kids right now. People adore the Terra team, as well as the numerous applications that are currently being developed on it.
Terra recently overtook Ethereum as the second-largest DeFi protocol, with approximately $18 billion in total value locked, according to data provider DeFi Llama.
According to its white paper, Terra has proof of stake mechanism in which validators validate transactions based on the number of currencies they own. Proof of stake Advocates claims it uses substantially less energy and has a lower environmental impact than previous models.
Because Luna is Terra’s native coin, its holders are given governance rights and voting authority over the protocol. However, investors should be aware that Luna is also used to govern Terra’s stablecoin pegs, which means that if something goes wrong with the Terra platform’s stablecoins. Luna is at the center of the shock absorption process. This can be a risk while purchasing.
Because of the risks, financial experts advise just investing as much as you can afford to lose in any cryptocurrencies. Before investing, you should think about and understand the possibility of huge price movements.
When it comes to Luna, the biggest danger is that investors could lose money if Terra’s stablecoins can’t keep their pegs, according to Hougan. Luna serves as a sort of volatility absorber for Terra’s stablecoins; hence Luna’s performance may be comparable to Terra’s stablecoins.
While Terra’s stablecoins, including the dollar-pegged UST, are now performing well. It is hard to anticipate how any asset will perform in the future or whether it will be able to resist extreme volatility or a bear market.
Furthermore, investors should be aware of any regulatory difficulties that may arise inside a protocol.
The Securities and Exchange Commission (SEC) investigates Terraform to see if it is selling unregistered securities. The Terraform Mirror Protocol, which provides synthetic replicas of stocks, is the subject of this subpoena, not the Terra protocol itself.
Terra is preparing to be a strong Ethereum competitor, according to Hougan, because of its stablecoins. Terra has offered incentives to get investors to join its DeFi ecosystem and boost UST demand. To truly compete with Ethereum on a larger scale, Terra will need to witness ongoing user growth and adoption, even after the incentives have dried up.
According to DeFi Llama, Ethereum is the largest DeFi protocol, with approximately $162 billion in total value locked. There are 13 DeFi protocols incorporated into the Terra ecosystem, compared to 373 on Ethereum.
Hougan thinks it’s still early for Terra, but it’s exciting.
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