LUNA Crypto Is Thrust Into the Spotlight Amid Terra’s 20% Price Skyrocket


Cryptocurrency is seeing reinvigorated interest from investors this morning, on the back of a huge turnaround. Yesterday, prices of top digital currency projects began mounting campaigns back into the green; today, those small upward swings have become a tidal wave of gains, with plays like Bitcoin (BTC-USD) and Ethereum (ETH-USD) adding 10%-15% to their values. Terra (LUNA-USD) is gaining attention as one of the biggest movers so far. The LUNA crypto, which had been able to withstand the market hardships of the last few weeks, is now reaping the benefits of the bull run.

A digital rendering of the Terra (LUNA-USD) crypto on top of a circuit board.
Source: Shutterstock

Indeed, the last month has been quite hard on crypto. The price of Bitcoin found its floor at just over $34,000; the bottoming brought to an end a spectacular $30,000 tumble from its all-time high in November. Given Bitcoin’s market influence, the trouble brought much of the market down with it. Luckily for LUNA crypto investors, though, the coin was one of the only digital currencies to resist sympathy losses. Rather, it spent much of February trading up; some days, it was one of the only cryptos with positive seven-day price changes among the top 100 crypto projects.

Now, with the market at large back on the mend, Terra is exceeding the gains posted by other projects. Bitcoin and Ethereum’s gains of 10% pale in comparison to LUNA’s 20% single-day rise. The momentum today caps off a busy week for LUNA; ultimately, the crypto is up more than 70% over the last seven days. It puts Terra so high up, in fact, that investors wonder if it’s primed to surpass its all-time high of $103, which it saw in late December.

LUNA Crypto Zooms Upward Thanks to UST Seigniorage

So, what does the LUNA crypto have to thank for its fast and furious gains through the last several weeks? One can chalk it up to TerraUSD (UST-USD), the official stablecoin of the Terra network and a key influence on LUNA values.

To understand how UST affects LUNA prices, one must first understand seigniorage, a key aspect of the Terra network. Seigniorage is an economic term that refers to the profit made by a government through the issuing of a currency, typically measured as the face value of the currency minus the cost of minting it. Terra has its own version of seigniorage, which refers to the profit made when adjusting the supplies of LUNA and UST.

See, UST is a stablecoin pegged at $1 USD. It keeps this value not through a reserve of currency, but through linkage of its total supply with LUNA’s total supply. The seigniorage process of the LUNA protocol occurs when UST prices go above or below $1. When above $1, LUNA holders can burn LUNA to mint UST, increasing its supply and dropping its price as a result. The restriction of the LUNA supply then increases the value of LUNA. If UST prices dip below $1, UST holders can burn their UST to mint LUNA, to the opposite effect. The result is a protocol in which investors can reap passive income by participating in the UST peg.

Market Volatility Kept LUNA Alive, Now Market Bullishness Allows It to Thrive

Terra has been able to hold its own throughout the bearish month of February because its link to UST made it a popular hedge against volatility in both the crypto world and in the traditional stock market. Many investors sought out stablecoins as a result of Wall Street becoming less of an appealing market for high-risk investing. UST is one of the favorites thanks to its link to Anchor Protocol (ANC-USD), a DeFi platform that promises an annual percentage rate (APR) of 20% on UST staking.

As CoinTelegraph reports this morning, an increase in Terra seigniorage is helping it make the most of the broader market turnaround. In recent days, 29 million LUNA coins were burned — a stash worth over $2.5 billion. The burning coincides with significant minting of UST, allowing it to keep its $1 peg and withstand inflation worries.

Atop its gain of over 21% this morning, Terra is seeing a vastly increasing trading volume. More than $5.5 billion in LUNA is swapping hands today, a significant increase over yesterday’s volume of $5 billion.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Brenden Rearick is a Financial News Writer for InvestorPlace’s Today’s Market team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.

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