LUNA, the native token on the blockchain Terra, surged 20% in the past 24 hours, and is trading at around $99, just below its lifetime high. The token’s rally has been driven by two major factors- demand for the stablecoin TerraUSD (UST), and the consistent burning of LUNA tokens.
LUNA is also one of the best-performing altcoins in the past month, up a whopping 47%. In comparison, Ethereum has fallen nearly 12%.
UST demand driven by high-yield seekers
UST, through Terra’s Anchor Protocol (ANC), gives depositors a nearly 20% annual percentage yield, making it one of the highest yielding stablecoins on the market. Yields on top stablecoins including Tether, USD Coin and Binance USD go up to 12%.
LUNA can be used to stake on the Anchor platform, and also absorbs market volatility to help UST maintain its constant peg against the dollar. ANC, which is the governance token on the Anchor Protocol, has also surged by about 62% in the past month.
Recent market volatility, in the wake of the Russia-Ukraine conflict, has seen traders rushing to stake on the Anchor platform for constant, market-beating returns. The conflict has also boosted stablecoin demand, due to their status as a safe haven in the crypto market.
LUNA burn rate rises
In addition to its use in staking UST, LUNA can also be burnt to mint UST, and vice-versa. Specifically, $1 worth of LUNA can be burnt to create one UST. Burning LUNA has the added effect of reducing the token’s supply in the market, which in turn boosts its price.
According to data from Terra Analytics, about 40 million tokens have been burnt in the last 30 days, bringing total supply down to about 360 million tokens in circulation. Coupled with growing demand for the token, this has also boosted prices.
The Terra community has been active in supporting UST, recently building a $1 billion Bitcoin reserve to maintain the near-2o% yield offered by ANC, lending further credence to UST’s stablecoin status. Recent reports have suggested that the community plans to increase its reserves.
Technical indicators also show that LUNA is likely to hit a record high soon.
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The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
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Source: https://coingape.com/terras-luna-leads-altcoin-rally-to-near-record-highs-heres-why/