The large rise for sibling token LUNA is due to the high demand for Terra’s stablecoin.
Terra’s LUNA token climbed to $104.58 on Wednesday morning. It broke the earlier all-time high of $103.34 recorded in December. LUNA went up 25% during the past 24 hours, as per CoinMarketCap statistics.
At the time of publication, the token had fallen to $102. Since around January, the stock has more than quadrupled in price. This is when LUNA hit a 2022 low of about $44. It now has a market capitalization of slightly under $38 billion. This makes it the sixth-largest cryptocurrency by market capitalization.
In general, the industry has recovered in recent days, with most cryptocurrencies showing increases. Terra, on the other hand, is going at maximum blast. Considering the names like bitcoin, Ethereum, Cardano, Binance, avalanche, as well as Solana dropping 40-70 percent from all highs, LUNA stands out from all the other large-cap digital currencies.
Relationship between LUNA and UST
Sales growth for sister coin TerraUSD, an algorithmic stablecoin tied to the US dollar, is probably to have been the reason for LUNA’s increases. The United States Treasury keeps its currency index by burning or releasing LUNA tokens.
Owners of UST can exchange UST into a $1 amount of LUNA whenever the price of UST falls below $1. Arbitrageurs can profit from the $0.02 differential. If the cost of UST rises above $1 due to high demand, people can create more UST by burning the dollar-equivalent quantity of LUNA.
The worth of LUNA rises as a result of the burning of LUNA tokens to produce UST. The LFG claimed that they will be burning the outstanding 4.2 million LUNA in its treasury. This is to give UST liquidity towards the stablecoin decentralized exchange Curve.
For today, the aim is to see how long the currency can remain over $97. If this occurs, LUNA may easily reach fresh all-time highs of $112, and possibly even $120, in the coming weeks.
UST Demand is Driven by the Anchor Protocol
Terra’s Anchor Protocol is driving this tremendous demand. This is indeed a decentralized banking system offering a roughly 20% annualized percentage return on Terra stablecoins.
Terra has seen a recent infusion of cash. It is because of its significant payout when contrasted to certain other stablecoin borrowing systems. As per the information source DeFi Llama, the platform’s overall worth has risen to $12.6 billion. This puts the Terra environment as the biggest DeFi protocol by TVL.
Anchor is presently compensating customers that start locking up their UST in the protocol. They will be paying them a 19.46% APY. Last Saturday, the Luna Foundation Guard announced that they would be minting the utmost quantity of UST to meet demand. To add to the positive sentiment, Terra co-founder Do Kwon announced on Twitter that perhaps the LFG is contributing $418 million to its treasury.
This increases the total amount to $1.5 billion. The savings might be spent to acquire LUNA tokens and convert them to UST. Moreover, they could be utilized to help bolster Anchor’s reserves in order to pay depositors those ridiculously high returns. They will be pushing up LUNA’s value in any case.
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