Terra's LUNA token has made an extreme price jump in the last few days. This was mainly due to a capital increase of $1 billion, which a separate foundation collected for the integration of the UST token. Terra is a prime candidate to dominate the DeFi market in the future.
What is Terra (LUNA)?
The Terra Network is known for developing a blockchain network for financial transactions through FIAT-backed stablecoins. The stablecoins should be based on real FIAT currencies such as the USD.
With this method, Terra is particularly suitable for classic financial institutions. They want a blockchain payment network that guarantees price stability based on the value of FIAT currencies. This makes Terra a hot candidate to become highly relevant in the field of decentralized financial services.
What is the current situation in the DeFi space?
An important indicator of the development of decentralized financial services is the "Total Locked Value" (TLV). This was almost unchanged in the last few days at a value of 193 billion US dollars. This is mainly due to the difficult times for the entire crypto market.
But within this TLV, major shifts have taken place in recent months. A year ago, market leader Ethereum’s share was 85%. This proportion is now only 57%. In recent months, Ethereum has faced a number of competitors for the DeFi market.
For a long time, the Binance Smart Chain (BSC) was Ethereum's biggest competitor. But since May 2021, the value of the TLV for the BSC has dropped to $20 billion. The number 2 in the DeFi market according to TLV since December 2021 is Terra (LUNA). The stablecoin network now has a 10% stake in TLV, which lags far behind Ethereum. However, the share of Terra (LUNA) is steadily growing.
Why could Terra (LUNA) take over DeFi?
In the meantime, a total of 73 protocols build on Terra (LUNA). The special thing about Terra is that the network is not covered by FIAT reserves, but by the LUNA token. This compensates for price fluctuations by reducing and increasing the stablecoin supply. This means that the LUNA token can also serve as an investment.
With the financial injection of one billion dollars through its own foundation, Terra can build up reserves for the stablecoin Terra USD, which is to be increasingly integrated into the Terra network. These reserves are also built up in Bitcoin, among other things. This increases the stability of the Terra network and the LUNA token. This triggered a rally in the past few days.
The combination of price stability and the possible increase in value of the LUNA token makes Terra so attractive for the DeFi market in particular. As Ethereum has yet to solve its own problems (including high gas fees), Terra could continue to catch up in the DeFi space in the coming months.
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