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LUNA Soars 25% To A New All-Time High Of $104

March 10, 2022 - Around 2 mins mins to read

The strong increase for sibling token LUNA is being driven by high demand for Terra’s stablecoin.

LUNA Soars 25% To A New All-Time High Of $104
LUNA Soars 25% To A New All-Time High Of $104

Terra’s LUNA token reached $104.58 on Wednesday morning, breaking the previous all-time high of $103.34 set in December.

LUNA was up 25% in the past 24 hours, according to CoinMarketCap statistics. As of press time, the token has fallen slightly to $102. Since setting a 2022 low of about $44 in late January, the price of cryptocurrency has more than quadrupled. With a current market worth of just under $38 billion, it is the sixth-largest cryptocurrency by market capitalization.

With names like bitcoin (BTC), ethereum (ETH), cardano (ADA), binance (BNB), avalanche (AVAX), and solana (SOL) down 40-70% from all-time highs, LUNA is an anomaly among large-cap cryptocurrencies.

LUNA’s gains are likely due to high demand for sister cryptocurrency TerraUSD (UST), an algorithmic stablecoin tied to the US dollar.

By burning or issuing LUNA tokens, UST keeps its dollar peg. When the value of UST falls below $1 (for example, to $0.98), UST holders can convert UST to $1 worth of LUNA (therefore, arbitrageurs can pocket the $0.02 difference).

LUNA Soars 25% To A New All-Time High Of $104
LUNA Soars 25% To A New All-Time High Of $104

In contrast, if demand for UST drives the price of the token over $1, as appears to be the case presently, users can mint extra UST (pushing the price of UST back down to $1) by burning the dollar-equivalent amount of LUNA. The price of LUNA rises as a result of the burning of LUNA tokens to produce UST.

Terra’s Anchor Protocol, a decentralized finance (DeFi) network offering an annualized percentage yield (APY) of over 20% on Terra stablecoins, is driving that significant demand. Because of the high yield relative to other stablecoin lending methods, Terra has seen an influx of money in recent weeks. According to data source DeFi Llama, the total value locked (TVL) on the platform has risen to $12.6 billion, making it the largest DeFi protocol by TVL in the Terra ecosystem.

Anchor is presently offering a 19.46% APY to customers that secure their UST in the protocol. Last Saturday, the Luna Foundation Guard (LFG) announced that it was minting the “maximum amount” of UST to meet demand.

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Patrick

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