While the broader cryptocurrency has been showing a sideways movement, Terraform Labs’ LUNA token has significantly climbed the ranks gaining 60% over the last week. Terra’s LUNA token has toppled some of the recent top performers like Polygon (MATIC), Shiba INU, and Avalanche (AVAX).
As of press time, LUNA is trading 9.58% higher at a new all-time high of $69.38 with a market cap of 26.8 billion. LUNA is now looking to make its way into the top-ten crypto-list by surging past the only meme coin – Dogecoin – in this list.
The LUNA price rally comes on the backdrop of the optimism surrounding the potential for decentralized applications (DApps). Besides, the use of the LUNA coin in these blockchain applications is also the reason behind it. As on-chain data provider Santiment explains:
Terra has been on a tear for most of Q4, and is up an astounding +76% against the #Bitcoin‘s price since November 24th. Also encouraging is the upward long-term trajectory of $LUNA‘s development activity rate, with rising #github submissions over time.
Understanding Terra’s Functioning and LUNA’s Use
The Terra protocol works on an algorithm of deploying fiat-pegged stablecoins useful in a decentralized finance (DeFi) ecosystem. Terraform’s DeFi ecosystem includes popular apps like Pylon, Mirror, and Anchor.
Besides, Terraforms recently introduced a governance proposal to destroy and burn nearly 88 million LUNA coins from the community pool, swapping it for Terra’s native stablecoin UST. In less than a month’s time, UST’s market value has surged 3x from $2.9 billion to $7.7 billion. This reduction in supply and scarcity – a deflationary economic activity – of LUNA has pushed the price higher. Speaking to Bloomberg, Brian Curran, head of communications at Terraform Labs said:
“Mostly everything we do as a company supporting the Terra ecosystem and third-party projects that build and develop creates more demand for UST, closing the ‘demand loop’ with many use cases for UST ranging from payments, to savings, and investing.
As a result, Luna’s price dynamics are mostly a function of the demand for UST, and by extension, the demand for using UST across various applications and blockchains.”
Cross-chain bridges like Wormhole can further boost the demand for Terra’s LUNA. This is because they might allow Terra to export UST to other blockchain networks.