On Monday, the prices of Solana’s SOL and Terra’s LUNA tokens reached new highs. As the overall market value of cryptocurrencies surpassed $2 trillion for the first time since May.
Despite security issues disclosed by the most significant DeFi attack ever in monetary value last week, the price surge for tokens representing two projects designed for the decentralized finance (DeFi) sector shows that investors remain confident in the market, especially in layer one protocols.
Solana Hit a New High
According to data from FTX and TradingView, Solana, the native token of Solana, a public blockchain supported by Sam Bankman-Fried, the creator of crypto exchange FTX, hit a new high of $69 on Monday.
Meanwhile, according to Messari’s data, Terra ($LUNA), the token of Terra, an algorithmic balancing system helps stablecoins keep their pegs to stable currencies such as the US dollar. It reached a new all-time high of $22.22 on Monday.
Both projects are layer one alternatives to Ethereum. The blockchain underpins ether, the second most valuable cryptocurrency by market capitalization.
As stated by the analysts, the rise of Solana and Terra reflects the market’s growing demand for higher scalability. As the recent non-fungible tokens (NFTs) craze, has brought crypto to a more mainstream market. Many investors and traders continue to bet that Ethereum’s impending migration from a proof-of-work (PoW) blockchain to a proof-of-stake (PoS) blockchain postpones.
According to CoinDesk 20, ether was trading at $3,226.39 at press time, up 2.09 percent, compared to SOL’s 27 percent raise for the day.
Adam James, a senior analyst at OKEx Insights, said that the Ethereum space’s NFT-fueled euphoria is beginning to spread to its layer one competitors. Because the alternative layer 1 [protocols] haven’t all received favorable development news at the same time, speculation is the key driver of cash flowing into less-developed blockchain ecosystems.
Solana’s aggressive drive with its latest release of the Wormhole, a cross-chain communication protocol between Ethereum and Solana, could not be more timely. This is according to Denis Vinokourov, head of research at Synergia Capital.
Vinokourov went on to say that the need for a scalable network is urgent today. Rather than years from now, as is the case with Ethereum, which is transitioning to PoS.
Wormhole’s Leading Network Went Live
As new protocols allow digital tokens to transfer across multiple blockchains have become particularly vulnerable to attacks. Last week, a hack on cross-chain DeFi site Poly Network took place. It resulted in losses of over $600 million, the largest DeFi hack to date.
Wormhole’s buzz demonstrates that investors and traders continue to have faith in cross-chain protocols while downplaying the security issues.
Meanwhile, LUNA’s price increase ascribes to its upcoming Columbus-5 network upgrade. As well as the fact that customers can now utilize ether as collateral on Terra’s Anchor protocol, a lending and saving platform.
According to Justin Barlow, a research analyst at The Tie, the Columbus-5 update states that instead of burning like in the past, all trade payments go to Luna stakers. Following the debut of Columbus-5, a slew of Terra apps will be published. Terra stakers will earn token airdrops in exchange for their staking efforts once each project goes live.
The Anchor Liquidity Mining
On the other hand, Anchor’s news increased the entire value locked in Anchor to roughly $2.2 billion in just three days. This is according to statistics from DeFi Llama.
CoinDesk writes that LUNA is part of an algorithmic balancing method that helps Terra’s stablecoins keep their pegs. For example, when TerraUSD (UST) trades over $1, users can submit $1 worth of LUNA in exchange for 1 UST. It brings the stablecoin’s price back into line.
The Anchor liquidity mining subsidizes borrowing on Anchor. Therefore, the growth of overall value locked in Anchor reflects the demand for UST. This is according to Jeremy Ong, vice president of business possibilities at research firm Delphi Digital. As the demand for UST grows, more LUNA tokens burn, raising the price of LUNA.
It’s also possible that the Coinbase effect has boosted LUNA’s prices. As Coinbase recently listed wrapped luna (WLUNA), an ERC-20 token designed to track LUNA’s value. TerraUSD (UST), a decentralized stablecoin powered by LUNA and the Terra ecosystem.
According to Ong, the timing of Coinbase’s UST IPO has also helped LUNA’s price rise. In the face of regulatory uncertainty surrounding stablecoins, the Coinbase listing for UST likely increased UST’s legitimacy and demand. This is the first time an algorithmic stablecoin like UST listed on a respectable exchange like Coinbase.
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