Why Terra’s LUNA is Falling and It’s Meaning For UST

LUNA seems to be falling these days. It has dropped 4.6% in the last 24-hours to a nine-day low of $85.59, but it hasn’t changed much. Coinmarketcap statistics show that it has lost roughly 9% of its value in the last 7 days. Despite this, the token is up more than 400% from over a year ago.

Terra’s stablecoin, UST, has been harmed by LUNA’s recent losses, which have reduced the reserve Terra keeps. According to the LFG, LUNA accounts for around 7% of the reserve’s valuation, which Bitcoin controls. BTC accounts for 78.9% of the stockpile, while the USDC stablecoin accounts for 12.8 percent.

Reserves Fall to Near 2-Month Lows Due to LUNA

Considering that BTC has been trading near $40K for almost a month, it’s little wonder that the United States Treasury’s reserve holdings have plummeted to levels not seen in nearly 2-months. The reserve has risen to levels last seen shortly after Terra’s creator began buying BTC to build the reserve. The reserve’s total worth is now $2.13B, down roughly 40% from one month earlier.

The UST reserve valuation has dropped, reducing the protection it provides against price fluctuations. As a result, the token’s stability may be jeopardized. A price shock of this magnitude has yet to materialize. US Stablecoin overtook Ethereum to become the 3rd biggest stablecoin by market capitalization. Due to DeFi network lock-in, the coin still trails far behind its peers when it comes to circulation.

Terra Must Proceed With Caution

This could happen because Bitcoin is likely to stay at this level for the next few months. The reserve’s valuation reserve could’ve been connected to the LUNA’s price. Terra will most likely have to raise LUNA’s burn rate to improve pricing.

In April, the LUNA valuation fell to its lowest level in more than a month because 10M tokens were released into the market, which induced a price shock. The token has lost 14% of its value and now trades at around a 1-month minimum of $81.34. This week, it’s among the worst-performing cryptos. The LUNA gift was recently used to purchase extra Bitcoin for the reserve by the public.

There were 10M LUNA in total, all taken from Terraform’s non-circulating LUNA holdings. LUNA prices were deflationary after they were released into active, total supply. The token’s valuation dropped by nearly 6% as a result of the contribution. 

A company called Terra analytics says that there are more LUNA tokens locked up than people who are using them. Terra must be careful in the future when it comes to LUNA costs. Purchasing BTC is also a dangerous proposition, considering the current state of the cryptocurrency industry.

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