Terra (LUNA) moved sideways over the past day, but at the time of writing it posted impressive gains on the weekly chart with a gain of 30.1%. On the 1 year chart, the token has 8,794% in gains. The project has known various partnerships. However, its main strength seems to be its tokenomics.
Researcher and investor Flood Capital compared Terra’s stablecoin UST with Tether, USD Coin, DAI to explain LUNA’s tokenomics. According to Flood Capital, some of the token’s stock should be burned with every UST struck on Terra’s ecosystem.
Tokens with combustion mechanisms and deflationary pressures have seen tremendous appreciation during this cycle. Binance native token BNB and PancakeSwap’s CAKE among them. As the researcher said, $ 1 UST struck equals $ 1 LUNA burnt.
With an estimated market cap of $ 1.87 billion, UST ranks in the top 5 stablecoins behind DAI, Binance USD and USDC with Tether in the top positions. Flood Capital expects UST to increase in acceptance and demand. Therefore, the stock of the token is reduced. The researcher said:
UST is currently the 5th largest stable coin with an mcap of over $ 1.87 billion and a daily trading volume of ~ $ 100 million, it has done so with only 7 exchange listings. The Luna ecosystem has generated a huge demand for UST with no major mentions, indicating a clear adaptation to the product market.
Demand for UST leads to LUNA appreciation
Further data from Flood Capital indicates that demand for UST has skyrocketed from January 25th until April 25th. During this period, UST’s offering has increased from less than $ 500 million to its current level. On average, the stablecoin has grown by $ 18 million per day. Flood Capital added:
So $ 18 million to Luna that got burned. I expect this to accelerate with more protocol releases and cross chain composability with Columbus-5.
The current circulating supply of the token is 376 million, of which 254 million have already been deployed. The researcher concluded that there are only 122 million tokens available in the market. On average, the token’s stock is burned by 0.27% daily. Flood Capital said:
Companies such as Apple and Exxon, known for their share buyback programs, have bought back ~ 20-25% of their shares in 5-10 years! Luna does those same numbers in 100-125 days.
As can be seen in the chart below, the token could run out of “liquid coins” in about 122 days if the demand for UST continues to grow.
The researcher expects more projects will be launched on Terra’s ecosystem and possibly further mentions of UST in major exchanges. According to Terra Do Kwon’s co-founder, UST’s market cap could reach $ 10 billion by the end of 2021. Flood Capital said:
The Luna ecosystem has only really started with just 2 major applications, but this has resulted in more than 1.5 billion UST in the last 3 months. As Luna continues to attract developers, new protocols and the demand for UST will explode, we are still early.