What are Luna Tokenomics?

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Elena

02/03/2023
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Ever since the inception of Bitcoin, the cryptocurrency market has been looking for altcoins in response. There have been great peaks and valleys within the altcoin realm, with some seeming to gain major ground only to fall off a cliff.

Enter Luna. Part of the Terra platform, Luna has made a name for itself within the altcoin space, seeing a massive rise in price. But what are Luna tokenomics, and what does the future look like for Luna?

Luna Price Fueled by Coinbase Stablecoin Tokenomics

One of the most buzzworthy names in the world of crypto has been Luna. The Terra DeFi token jumped up almost 320% in a single month, which helped to bring altcoins to new highs while also bringing a new fever to altcoins.

Luna is the native token to the Terra blockchain. Terraform Labs developed its own blockchain in 2018, known as Terra. It is a project that helped to power their own decentralized apps and their own cryptocurrencies.

It is also a somewhat ambitious protocol that is doing what it can to build a stablecoin through e-commerce, with the aim of complementing some of the existing payment solutions while adding a bit of a twist.

The key behind the stabilization is through the Luna currency. Luna has a central role in terms of controlling the supply of the various stablecoins on Terra while also playing a role in both the staking and governance as a utility.

Luna also is used to add more stablecoins to the Terra platform, perhaps most notably TerraUSD. This comes at times when demand is higher in an effort to minimize the overall market demands on the price. Luna that is used to create the stablecoin will ultimately be removed from the supply in general, which is known as “burning.” This is how Luna tokenomics work.

The Rapid Rise

There was a time when the entire altcoin market was struggling, especially in the face of major growth from Bitcoin. Even in the face of this, Terra continued to rise and quickly recovered from a late-2021 fall, hitting a new all-time high while larger market sell-offs were taking place.

It was climbing as much as 36% daily and nearly 66% weekly at one point, making its way into the top ten cryptocurrencies based on market cap. It finished 9th in total market cap, at just over $29 billion. It even finished ahead of Dogecoin and Polkadot.

They closed 2021 with a massive jump in ROIs vs. USD, with a 14,583% jump. The altcoin’s performance has been nothing short of incredible, despite predictions of a long downward trend ultimately coming.

Why the Rise?

So the question becomes, “Why the rise?” One of the major reasons behind the rocket-like price hike had to do with their growing DeFi ecosystem. It had such dominance within the DeFi space that saw incredible growth, particularly in a one month period.

Even as there were major sell-offs happening, with Solana losing 10% of its TVL in a 24-hour period and Ethereum’s TVL dropping by 5%, Terra’s TVL rose nearly 13% in a single day and almost 50% in just one week, quickly coming close to Binance and their TVL.

This is ultimately indicative of higher institutional interest for Terra. If anything, that has been a major component in their token price surge. The percentage of stablecoin total supply that was held by whales, those with more than $5 million USD, held at a high level.

New Upgrades

The Columbus-5, a greatly anticipated main net upgrade to the overall Terra ecosystem, became one of the most important upgrades to the Terra blockchain. It is meant to simplify the tokenomics of the system, which makes LUNA and UST more valuable while making operations smoother.

The Columbus-5 upgrade is similar to the EIP 1559 upgrade from Ethereum in that it will burn a significant sum of Luna to make the conversion of Luna to UST far more efficient. The more that Luna burns, the more valuable the other coins within the ecosystem become, with UST becoming the most prominent.

That same upgrade will also give swap fees to those stakers in Luna, meaning that the more the Terra system grows, the rewards for Luna will grow as well. In addition, Columbus-5 provides support to other assets while expanding user adoption and increasing utility.

The meteoric rise and the Columbus-5 upgrade have become game-changers for not only Luna but also for Terra at large. The investors and markets continue to look toward the altcoin scene. This is something that has been clearly reflected when it comes to the overall growth of the Terra stablecoins.

These stablecoins have given greater use of the network to others. This includes retail payment services, which appeal to the important retail crowd. This also aids fiat deposit interoperability, allowing lower levels of volatility over a longer period of time.

Terra has also announced a partnership with the Anyswap Network protocol. The goal here is to bridge those layer-1 and layer-2 blockchains, ultimately connecting FTM to UST through the use of a cross-chain bridge. This will do nothing other than boost the Terra token Luna, which should pump up the price even more.

The Terra platform bears watching, both in the short- and long-term. Though it cannot hold its huge ROI rates forever, it will be interesting to see where it will wind up in a few months or a year.

Conclusion

With so many different cryptocurrencies entering the market all the time, it can become easy to get lost in the mix, particularly if you are not an expert on the matter. One of the names worth noting is Luna, and for good reason.

In an effort to create stablecoins, Luna is effectively being burned off, making it a rarer and more valuable token on its own, which is all part of the Terra platform.

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