Blockchain project Terra and its native token LUNA have quickly moved from the sidelines to the forefront of DeFi. With over $1.9 billion in TVL, its the fifth largest blockchain project, trailing closely behind Avalanche.
With several major fundamental developments underway, LUNA saw its price increase by over 50% in the past week, with industry insiders believing that this is just the start of a major bull run set to take place in the following weeks.
What‘s behind LUNA’s major rally？After Bitcoin took a massive hit last week, dropping dangerously close to its coveted $50,000 resistance levels, the rest of the market went into the red alongside it. However, the major drag downwards doesnt seem to have affected LUNA, the native token of the Terra blockchain.
The Layer-1 blockchain platform has quickly risen from the sidelines to the forefront of DeFi, riding a wave of extreme interest in its innovative stablecoin products. Terra enables users to swap their LUNA tokens for a wide variety of stablecoins pegged to different fiat currencies. As minting $1 worth of UST requires burning $1 worth of LUNA, an increasing supply of stablecoins on Terra decreases the circulating supply of LUNA, thus raising its value.
This simple proposal has led to over 3.2 million registered accounts and 15.3 million UST in tax rewards distributed in the past year.
Earlier this month, the Terra community passed a proposal to burn 88.7 million LUNA tokens, worth roughly $4.5 billion at the time. The burn was initiated to mint between 4 and 5 million terraUSD (UST), a decision analysts believe would further boost interest in Terra.
And boost interest it did—the token saw its price increase by over 50% since last week, fueled mostly by a slew of new proposals set to be approved by the community.
The ultimate goal for all of the recently submitted proposals is to have UST become the go-to interchain stablecoin. This process is set to begin by increasing UST liquidity on Curve Finance, Ethereums premier AMM for stablecoin swaps, through a 6-month incentive plan through several Terra apps.
All of the previous LUNA burns have caused a huge increase in the annualized staking return for the token, which jumped from 4.61% at the beginning of November to 10.74% at the end of the month.
According to Nicholas Flamel, one of the more prominent Terra community members, we are about to see an even bigger increase in LUNAs price in the coming weeks.
“The Terra economy is in full expansion,” he told CryptoSlate. “Im fairly confident that we have seen nothing yet.”
Flamel said that both the Terra community and its development team anticipate that UST will reach $10 billion in market capitalization by the end of the year. And as minting 1 UST requires burning $1 worth of LUNA, the Terra ecosystem is about to go parabolic.
“This means we will have to buy/burn around $2.5 billion worth of LUNA in the next 4 weeks. This is big. Im not sure we have ever seen such massive buying pressure incoming on a coin like this before.”