The Columbus-5 upgrade has changed the token economics of the network, putting deflationary pressure on LUNA.
After the blockchain’s widely anticipated Columbus-5 upgrade went live last Thursday, Terra’s LUNA token prices have touched new highs since Saturday.
After some questioned whether excitement about the Columbus-5 upgrade already priced in back in August, the surge restored investors’ faith in Terra. It is a base-layer blockchain project comparable to the Ethereum blockchain. Terra is now the 11th most valuable cryptocurrency, with an approximately $19 billion market valuation.
Investors will benefit from the Columbus-5 upgrade because it enabled the Inter-Blockchain Communication (IBC) standard, which will let users effortlessly transfer LUNA, the TerraUSD (UST) stablecoin, and other assets from Terra to other networks and vice versa.
Columbus-5
Columbus-5 is a significant upgrade for Terra, according to Ryan Watkins, a Messari research analyst. Cosmos is an interoperability project that attempts to construct a network of independent blockchains communicating using IBC. IBC will allow Terra to export TerraUSD and position it to become the de facto stablecoin of the Cosmos ecosystem.
LUNA is a component of an algorithmic balancing system that enables Terra’s stablecoins to maintain parity with fiat currencies. LUNA was trading at $46.91 at the time of writing. This is up 10.54 percent in the past 24 hours, according to Messari. On Monday, the price climbed to a new all-time high of $49.43.
Columbus-5’s effect on LUNA
According to crypto research firm Delphi Digital, another key component of Columbus-5 driving LUNA’s price is a change in the network’s token economics.
When stablecoin’s price rose above $1, users could send $1 worth of LUNA to a community pool. They also receive 1 UST in exchange. This is a trade that helped stablecoin’s price return to parity with the dollar.
Once UST is created, LUNA burns instead of being sent to a community pool. According to DelDigital’s newsletter, over 23.4 million LUNA tokens (worth more than $1 billion at current prices) of the community pool previously received. These were burned on the day of the update.
According to Delphi Digital, the supply burn puts deflationary pressure on LUNA, making it rarer. This has been a significant driver of recent price movement.
Following the Columbus 5 upgrade, projects like Orion Money and Loop Finance prepare to launch on StarTerra.
- Orion Money is a technology that allows DeFi users to earn up to 20% stablecoin dividends by staking into Terra protocols.
- Loop Finance, akin to Uniswap on Terra, is an automated market maker (AMM) that is launching on StarTerra and Pylon.
Metaverse projects and crypto-based games have begun to appear on the Terra blockchain. For example, Derby Stars is a horse racing game that will be the first NFT game on Terra when it launches soon.
The Terra ecosystem will become more dynamic in the near future as additional projects launch. Also, the value of LUNA rises.
This tendency is in the Teblockchain’sin’s TVL, which refers to the number of tokens, such as LUNA staking in projects based on Terra.
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