Amid LUNA’s trip to the moon and Terra’s exploding TVL, watch out for this


Bullish investors were over the moon when Terra [LUNA] enjoyed a brisk rally that took it from $50 to over $100 in a matter of days. Even in its recent report about the asset, Messari tweeted that LUNA had “firmly planted itself on the moon.”

However, before you whip out your wallet and get ready for lift-off, read this.

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Time to do the moonwalk

At press time, LUNA was trading at $93.64, having corrected by 0.70% in the last 24 hours, but rising by 8.88% in the last week. Furthermore, LUNA was performing well at a time when a number of other popular alts and so-called “Ethereum killers” were flailing in the red.

Messari proposed two reasons for LUNA’s ascent. One was the Luna Foundation Guard (LFG) raising $1 billion for a Bitcoin reserve for UST. The second was an uptake in usage and LUNA fundamentals.

That being said, Messari noted that while Terra’s TVL was rising, its CMC was not matching the relative growth rate. This led to it moving out of the band containing rivals such as BSC, Avalanche, and Fantom.

You’re my anchor

So, Terra has a rising TVL on its side, but what is boosting said TVL? According to Messari, the clear answer was debt protocols, with a growth of around 96% in the past 90 days.

Messari reported,

“Most of the TVL growth has come from debt protocols as Anchor has grown by $5 billion in 30 days. Deposits are largely chasing Anchor’s 20% yield as debt has only grown one-third relative to deposits.”

In fact, more than half of Terra’s TVL is reportedly in debt protocols. But it’s not just Anchor doing the heavy lifting here, if you’ll pardon the pun. Another ingredient in Terra’s success has been the rise of the UST stablecoin, which Messari observed had the biggest supply as well as the fastest growth in circulating supply and usage.

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However, UST’s benefits are a double edged sword as Messari explained,

“Key risk is in unwinding of the Anchor UST deposits which could potentially over-supply the UST market outside of the protocol.”

AMBCrypto has also previously explored the challenge of Anchor’s sustainability.

Work in progress

Market caps and DeFi protocols have an important role to play in network adoption, yes, but it’s just as vital to remember the humans who are building Terra.

To that end, development activity for LUNA initially kept up with the coin’s rally, but then saw a steep plunge in late February. This could be attributed to the start of the Russia-Ukraine war. However, it remains to be seen if a recovery will take place soon.

Source: Santiment




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