MEXCTerra (LUNA) Slumps 14% This Week, Here’s Why
Terra (LUNA), the native token on the eponymous blockchain, sank to an over one-month low this week as the release of 10 million tokens into circulating supply caused a price shock.
The token dropped 14% this week, and trading near a one-month low of $81.34. It is also one of the worst performing cryptocurrencies this week.
LUNA supply shock?
A bulk of the token’s losses stem from a donation of 10 million LUNA tokens to the Luna Foundation Guard (LFG). The donation was made by lead Terra developer Terraform Labs, and, is intended to be deployed towards bolstering the LFG’s stablecoin reserves.
LFG’s reserves, which back the stablecoin UST, are worth about $2.45 billion, of which nearly 70% is Bitcoin (BTC). The community recently applied the LUNA donation towards buying more BTC for the reserve.
But the 10 million tokens were also from Terraform’s non-circulating LUNA reserves. Their release into active, circulating supply had a deflationary effect on LUNA prices. The token’s price slid by over 6% in immediate reaction to the donation.
LFG’s reserves are an attempt to lend UST further credibility as a completely decentralized algorithmic stablecoin. The reserves are set to act as a buffer for any extreme liquidity shocks.
But Terra’s heavy concentration of BTC in its reserves has drawn criticism, and also spurred some LUNA selling. BTC tends to log large price swings, making it unsuitable to use as a reserve currency.
Tracking BTC, the value of Terra’s reserves recently hit a one-month low.
Terra has more locked tokens than in circulation
LUNA has been criticized over the fact that its non-circulating supply, held by Terraform Labs, is far more than the token’s circulating supply. The release of these tokens could further rattle LUNA prices.
Data from Terra Analytics shows that 383 million LUNA tokens are locked, compared to 358 million tokens in circulation.
Terraform, and the LFG have attempted to offset this supply difference by regularly burning LUNA to mint UST. The move is inflationary for the token’s prices, and also generates more of the stablecoin for circulation.
Prior to the donation, nearly 132 million tokens were burnt in LUNA’s lifetime. But the token is still prone to shocks if more LUNA is released from Terraform’s reserves.
- Pi Network Dedicates 350,000 Active Nodes for AI With OpenMind Partnership
- Breaking: Trump Cuts Tariffs as US-China Reaches 1-Year Trade Deal, Bitcoin Rebounds
- Binance Responds to Charges of Supporting Trump-Family Crypto USD1 and WLFI Soon After CZ Pardon
- SpaceX Makes Third Huge Bitcoin Transfer in 10 Days, Is Elon Musk Planning Something Big?
- Crypto Market Tumbles as Jerome Powell Says December Rate Cut ‘Far From Certain’
- Ethereum Price Flips BTC in Strategy Shift, Eyes $4500 Level
- Expert Predicts XRP Price to Hit $10 as Elliot Wave, XRPR ETF Inflows Align
- HYPE Price Prediction as 21Shares Files S-1 for Hyperliquid ETF—Can Bulls Push HYPE to $60?
- Bitcoin Price Rally Bound? How the Fed’s Move May Unleash Crypto
- Can ASTER Price Rebound 50% as Whale Activity and Bullish Pattern Align?
- Pi Network Patterns Point to More Gains Despite Manipulation Claims
Why Trust CoinGape
CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
