Up 5,000 percent since the beginning of the year
2 min readLUNA token lives up to its name and is still on the rise. What’s behind it?
2021 continues to look bullish for Terra. The stablecoin protocol has recorded massive growth since the beginning of the year, which is reflected, among other things, in the price development of its native token LUNA. This has increased by around 5,000 percent since the beginning of the year. At $ 33.22, the token hit a new all-time high on August 19th.
The Terra protocol runs on a Proof of Stake (PoS) blockchain, in which the validators have to deposit (stake) LUNA tokens in order to confirm Terra transactions. Terra was developed to ensure a balance between the various stablecoins such as TerraUSD (UST), TerraKRW (KRT) or TerraEUR (EUT). This is done using an algorithm that is fed from on-chain data on the use of the various stablecoins. Terra is based on the principle of changing the supply of tokens in order to ensure their price stability. If the price deviates from the target value (e.g. $ 1), the protocol will put pressure on the market to bring the price back up to the target value.
LUNA token for stability, governance and arbitrage
If the demand for UST increases – for example through its integration into a payment app – the price of the UST tokens that are already in the network also increases. LUNA holders then have the option of exchanging LUNA with the equivalent of one US dollar for UST with the equivalent of one USD. This increases the UST supply in Terra until the coupling (1UST ≙ 1 USD) is restored.
Some of the exchanged LUNA tokens will be destroyed, which in turn has a positive effect on the LUNA price. Conversely, if demand drops, UST holders can exchange UST back into LUNA. If, for example, the UST rate drops to 0.9 USD due to lower usage / demand, UST holders will still receive LUNA with the equivalent of 1 USD. The UST will be destroyed and the offer will decrease until the target exchange rate of 1 USD is reached again. In addition to its function as collateral, LUNA also serves as a governance token. His holders can vote with him on protocol changes and the distribution of grants from the community fund.
Coinbase listing and anchor fuel Luna course
On August 10th, the US crypto exchange Coinbase Pro announced the listing of UST. This has given the LUNA course further tailwind. Another demand or price driver is the anchor protocol. This is a kind of “savings account” for the Terra ecosystem. Since its launch in March, over 1.2 billion UST has been deposited in Anchor. The crypto lending protocol offers a proud APY of around 20 percent on stablecoin deposits.
With ANC, Anchor also has its own governance token. Like LUNA, the ANC rate is also printing a rate increase in the double-digit percentage range today. At the time of going to press, ANC was trading at USD 3.7, up 22 percent on a 24-hour basis.
