Although the sell-off in the broader cryptocurrency market has slowed down a bit, that’s not really the case for Terra’s LUNA. The LUNA cryptocurrency is down another 12% today dropping under $44 while extending its weekly losses to 35%.
Over the last month, the LUNA price has tanked more than 50%. While other altcoins in the top ten crypto-list have stabilized, Terra’s free-fall seems a matter of concern.
As we reported, the negative sentiment around Terra is because of the ecosystem’s link with Magic Internet Money (MIM). Furthermore, Terra’spartner Abracadabra protocol holds a close association with Wonderland.
The Abracadabra protocol deposits UST in exchange for MIM which they can further stake on Wonderland and generate a yield of 13000% APY. Popular crypto-journalist Colin Wu explains:
The Abracadabra protocol allows users to deposit UST to borrow MIM and automatically exchange MIM for UST. The UST mechanism determines that the price of Luna is linked to the total amount of UST locked. So the problem of MIN poses a danger to Terra’s ecology.
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Will Terra Recover From this Market Fall?
Well, it’s difficult to say as to how Terra’s LUNA will perform going ahead. There’s a lot of buzz around Terra’s association with the Anchor Protocol as the protocol is responsible for generating the highest demand for Terra’s UST stablecoin.
Anchor is a protocol where you can earn on your $UST and you can borrow $UST using your $LUNA or $ETH as collateral. To understand more, check the below thread from crypto analyst Jarzombek who explains the entire correlation and yield generation using LUNA.
Does $LUNA have a problem because of the @anchor_protocol ?
Is the whole @terra_money system in danger?
Full Thread 🧵 🧐 pic.twitter.com/53Z8LGSGwi
— Jarzombek 🌔 (@jarzoombek) January 27, 2022
Furthermore, the Anchor protocol seems to be taking some corrective measures recently. Last Saturday, Anchor made an announcement that it’s increasing its bLUNA LTV value to 80%. Anchor notes:
Raising LTV to 80% will increase bLUNA collateral capital efficiency. This is not only needed to generate more loan revenue from collateral but to also make the borrowing side more competitive with other well-established lending protocol’s LTV ratios. Moreover, increasing the LTV will also encourage more borrowing.
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