Last week, Terraform Labs’ Luna coin (LUNA) had its best week ever.
On Dec. 4, in the midst of a colossal cryptocurrency selloff, Luna soared to an all-time price and market capitalization high of $75.56 and $29.3 billion, respectively. Despite Luna’s 17% price drop in the past 24 hours (as of Dec. 6 at 12:30 p.m. Hong Kong time), the coin’s gains in the past seven days clock in at nearly 32%—compared with Bitcoin’s 15% decline, Ethereum’s 4% drop, and Binance Coin’s 10% fall over the same period.
Now ranked No. 10 among coins worldwide with a value of $25.1 billion, Luna has surpassed meme coins Dogecoin (DOGE), Shiba Inu (SHIB), and Ethereum challenger Avalanche (AVAX).
At the start of the year, Luna was worth $300 million. In July, the coin made its first bull run when its market cap surged to $2.6 billion. In the past six months alone, Luna has logged a 900% price rise.
Crypto investors’ search for more efficient and less expensive options to Ethereum—the industry’s top system for smart contracts and decentralized finance (DeFi)—has fostered the rise of alternatives like Avalanche, Solana (SOL), and Luna, says Justin d’Anethan, institutional sales manager at crypto exchange and service provider Eqonex. In the past half year, Avalanche’s price has gained 368%, while the price of Solana jumped 346%.
Last week, it was Luna’s turn. During the weekend’s cryptocurrency flash crash, many investors saw an opportunity to “cycle some of their capital to this presumably undervalued asset,” says d’Anethan. Luna’s positive performance is even more significant given that other coins haven’t yet fully recovered from the recent pullback, he says.
Founded in 2018 by South Korean entrepreneurs Do Kwon and Daniel Shin, Singapore-headquartered Terraform Labs operates the Terra protocol, a blockchain that uses algorithms to generate its own fiat currency–pegged stablecoins (cryptocurrencies that peg their value to a currency or commodity to stabilize the token’s volatility), known as TerraUSD, or UST.
UST and Luna move in tandem with one another: When UST is “minted”—the process of validating and recording information into a new block on the blockchain—the same value amount of Luna is “burned,” or removed from circulation.
“Luna directly benefits from the economic growth of the Terra economy, and it suffers from contractions of the Terra coin,” Terraform Labs CEO Kwon, told Fortune in July.
At the end of September, a Terra protocol upgrade to help keep UST pegged to Terra’s fiat value, resulted in around 100 million Luna tokens burned in the following months, which reduced the coin’s supply and drove up its value.
Stablecoins for years have played a “vital role in the crypto industry…but algorithmic stablecoins are less well known. And so far, very few [players] have been successful in capturing significant market share,” says Ben Caselin, head of research and strategy at crypto exchange AAX.
The Terra protocol is unique from other Ethereum competitors in that Terraform Labs has made significant progress with UST, its “high-quality” algorithmic stablecoin, says Caselin. UST has “proven itself to be stable in continued bear markets…[though Terraform] is now working to address sudden liquidity shocks,” says Mira Christanto, senior research analyst at crypto research and data firm Messari.
Still, Terraform Labs could see some bumps ahead. In the crypto market, the expectation is that “fiat-pegged stablecoin issuers will be the first to see heavy regulation, especially as we see the language evolve around central bank digital currencies,” says Caselin. Algorithmic stablecoins like Terra’s UST could face “growing demand as this pressure continues to build up.”
Last month, the U.S. Securities and Exchange Commission announced it was investigating Terraform Labs’ Mirror Protocol—which allows users to generate and trade so-called mAssets that mirror the price of U.S. securities—for potential violations of U.S. securities law.
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