How did Terra’s token economy and interoperability drive LUNA?

Most altcoins crashed after the recent sharp drop in the market. At the time of writing, the majority are still struggling to recover as Bitcoin is trading at $ 48,172. In contrast, LUNA rebounded, not only quickly recovering from its December 3rd decline, but also reaching a new all-time high amid a market sell-off.

LUNA 4-Hour Price Chart | Source: Tradingview

LUNA is trading at USD 64.9 at the time of going to press, up 26.2% on the weekly chart and is among the top 10 cryptocurrencies by market capitalization. This altcoin ranks 10th with a total capitalization of $ 24.25 billion, ahead of DOGE and AVAX. So what caused the LUNA rally?

The galloping rally

LUNA brings an annual ROI of nearly 14.583% against the USD for HODLers, and the Altcoin’s performance over the last month has been described as phenomenal. The strong performance after the price broke the sustained downtrend suggests the possibility of a new ATH.

The platform’s growing DeFi ecosystem is one of the reasons it’s dynamic. In fact, LUNA’s dominance in the DeFi space has increased dramatically over the past month. It is noteworthy that the Total Value Locked (TVL) has declined significantly in all chains amid the massive market sell-off, according to Defilama.

Solana lost 10% of its TVL in 24 hours, while Ethereum’s TVL is down more than 5% and BSC is down 8.76%. Terra’s TVL, on the other hand, is up 12.74% in one day and is almost 50% from last week to $ 14.57 billion, just $ 2 billion less than Binance’s TVL.

Total value locked for all strings | The source: Defilama

In particular, Terra’s growth in the DeFi sector and the increase in TVL indicate increased institutional interest in the network over the past month. This is the deciding factor behind the token price increase.

In addition, LUNA’s development activity, which was gradually declining at the end of November, is picking up again. It has increased more than 50% in the last 5 days.

Source: Sanbase

On the other hand, the share of whales in the total supply of stablecoins is kept at a higher level with more than 5 million US dollars.

Other aspects

Terra’s stablecoin ecosystem also empowers the coin in the market by allowing better interaction. Terra has deployed several stablecoins including TerraUSD (UST), TerraCNY, TerraJPY, TerraGBP, TerraKRW, TerraEUR and TerraSDR from the International Monetary Fund.

The above-mentioned stablecoins are used for bulk payments and thus serve retail purposes. At the same time, they all support less volatile fiat-depot interactions for use over a longer period of time.

Recently, Terra announced a partnership with the Anyswap network protocol, which aims to connect Layer 1 blockchains and now UST, FTM via a cross-chain bridge. All of this continues to drive demand for Terra’s native LUNA token, thereby increasing the price.

In addition, recent changes in Terra’s release model are also helping to increase the price. In the last week of November, more than 7.2 million LUNA were burned. This further increases the severity of the supply shock in the long term.

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