The price of Terra’s native token $LUNA is up over 10,000% year-to-date thanks to growing demand for its algorithmically backed stablecoin, USDT, and for token burns that have seen a significant portion of LUNA’s supply get removed from circulation.
According to Binance Research, Terra is a Proof of Stake (PoS) blockchain. They also say that LUNA is “used in the issuance of stablecoins (TerraSDRs), as a price stability mechanism, as well as for staking and network governance.”
Terra was developed by South Korean blockchain company Terraform Labs, which itself was founded in January 2018 by Danial Shin and Do Kwon. Terra’s mainnet was launched in April 2019 and its native token initially saw relatively muted price performance. Earlier this year, LUNA’s price started jumping.
LUNA is now the eleventh largest cryptoasset by market capitalization and is trading above $67.6 a token. Its total market capitalization is now $26.1 billion. Its price has been surging partly because it supports smart contracts and, as such, decentralized applications. Other blockchains supporting these decentralized applications have also seen their prices explode this year.
According to DeFiLlama data, LUNA’s decentralized finance applications have over $13.4 billion worth of cryptoassets locked in them. Part of the demand for DeFi on LUNA is related to its algorithmic stablecoins used on apps like Anchor, Mirror, and Pylon.
Mirror, Bloomberg reports, offers tokens mirroring U.S:-traded stocks, and triggered a probe from the U.S. Securities and Exchange Commission (SEC) as to whether it was selling unregistered securities or not.
Earlier, the LUNA community approved a governance proposal to permanently burn 88 million tokens from the community pool, swapping it for Terra’s USDT stablecoin. The move has helped UST’s market capitalization surge from $2.9 billion in early November to over $7.8 billion at press time.
LUNA’s token burns were further supported by a recent upgrade, which saw tokens committed to creating UST get burned instead of stacked in a community pool. Over 100 million LUNA have already been burned.
To some observers, the LUNA token burns coupled with staking activities that allow token holders to earn interest on their holdings while securing the network, has led to a supply shock on exchanges that drove up the value of the cryptocurrency.
Terraform Labs’ head of communications Brian Currency was quoted in Bloomberg’s report saying that “mostly everything” the company does to support the Terra ecosystem “creates more demand for USDT,” which results in Luna’s price dynamics functioning based on demand for UST.
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