Luna token price is soaring, but is the network’s growth sustainable?

Terra, an open-source blockchain platform for algorithmic stablecoins, has been on fire over the last half-year or so. The value of its native crypto asset Terra (LUNA) has risen from $24 to over $100 during the last six months, placing it in the top 10 cryptocurrencies by market capitalization. 

And, even though LUNA has showcased minor corrections here and there, the currency and the Terra project, in general, have continued to grow from strength to strength. To this point, on March 4, LUNA flipped Ether (ETH) in terms of total staked value, with $29.5 billion worth of LUNA being locked up within the platform compared to ETH’s $25.9 billion.

Furthermore, Terra’s native data show that the ecosystem currently has over 230,000 stakers, making it the second-most staked crypto asset with more than four times the number of those staking ETH at 54,768. Lastly, in terms of its annual staking rewards, LUNA touts an average annual yield of around 6.62%, while ETH fetches 4.81%.

With LUNA up over 350% in the last 12 months, a number of pundits have continued to claim that Terra’s aforementioned growth may not be sustainable. In fact, individuals associated with the ecosystem — both for and against — have placed massive bets in regard to where LUNA will be trading around this time next year.

The $1 million bet that has the Terra community buzzing

With LUNA up over 350% in the last 12 months, a number of pundits have continued to claim that Terra’s aforementioned growth may not be sustainable. In fact, individuals associated with the ecosystem — both for and against — have placed massive bets in regard to where LUNA will be trading around this time next year.

Pseudonymous crypto trader “Sensei Algod” is so bearish on Terra’s token that he recently wagered $1,000,000 that by March 14, 2023, LUNA will be trading at a price point lower than what it was on the above said date at $88. Algod’s proposition was swiftly taken up by Do Kwon, CEO and founder of Terraform Labs, the firm behind Terra, who also put up the same amount claiming that the cryptocurrency will most definitely be trading at a price point higher than $88 by then.

As conversations between the two escalated via Twitter, the duo eventually decided to seek out the services of Cobie, co-host of the crypto podcast UpOnly, who will serve as an escrow agent facilitating the entire agreement. To elaborate, both Kwon and Algod have locked up a total of $1 million each in Tether (USDT) within an Ethereum address labeled “Cobie: LUNA Bet Escrow.”

Kiril Nikolov, head of DeFi strategy at Nexo, a blockchain-based lending platform, told Cointelegraph that while bets like these can gather a lot of attention, they don’t “really matter” in the grand scheme of things. He added that developers will keep on building on Terra regardless of LUNA’s price or if Do Kwon loses the bet. 

A similar opinion is shared by Derek Lim, head of crypto insights for cryptocurrency exchange Bybit, who told Cointelegraph: 

“I don’t think that we can or should read too much into this. It will be a stretch to think that this wager between private parties can mean anything insidious or bullish. Instead, we should focus on other factors like the sustainability of the project’s yield reserve.”

Daniel Santos, CEO of Woonkly, a decentralized finance- (DeFi)-based social media network, believes that wagers showcase LUNA’s growing popularity. “The more popular a project is, the more fans and haters it has. One of the haters placed a bet against LUNA and Terra’s founder accepted the bet and why not — it’s that simple,” he told Cointelegraph.

Is Terra’s growth really sustainable?

While on paper, Terra’s rise seems extremely impressive, especially with LUNA flipping ETH in terms of staked value and their number of respective token stakers, Nikolov pointed out that there’s a major difference in the staking model of the two projects, given the inability of investors to withdraw their staked ETH and its rewards until Ethereum 2.0 is released. “Thus, it’s normal that only a small percentage of all ETH is staked, compared to LUNA,”’ he added. 

Furthermore, Nikolov noted that Terra has done a great job in recognizing that liquid staking solutions are needed in order to generate stable and composable demand that can further be used for collateral, adding:

“Once the Eth2 merge is complete, we can expect the percentage of staked ETH to become similar to that of LUNA, with liquid staking solutions such as Lido playing the main role of generating utility of the staked ETH, for example, as collateral).”

Lim believes that Terra’s existing staking yields are quite sustainable, adding that at a very baseline-type level, the staking rewards generated via the system’s Tobin tax and the spread fees from the LUNA/TerraUSD (UST) mintburn swaps are very practical.

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