Okay, it seems like a lot of people don't understand why $LUNA has so much upside potential when compared to an asset such as $SOL? This 🧵 will cover a few things:
1. What are its "products"
2. Inflation/Deflation
3. Other stats
1. What are its "products"
2. Inflation/Deflation
3. Other stats
Both @solana and @terra_money are proof of stake (PoS) blockchains. On PoS blockchains, users can delegate their tokens (this being $SOL or $LUNA) to a validator which will validate transactions on the network to earn rewards.
These rewards generally come from two sources,
1. Newly minted tokens.
2. Network transaction fees.
$SOL, like most other blockchains, do both.
1. Newly minted tokens.
2. Network transaction fees.
$SOL, like most other blockchains, do both.
Network transaction fees with the addition of newly minted $SOL which is used to further incentivise the validation of blocks on the network are distributed to stakers. On the other hand, we have $LUNA, which only pays out network transaction fees and no newly minted tokens.
You may be thinking this is bad for $LUNA, as it’s staking rewards should be lower, but that is not the case. If we take a look at current staking rewards for both networks, we find:
$SOL = 6.24%
$LUNA = 9.5% (10.92% including airdops)
$SOL = 6.24%
$LUNA = 9.5% (10.92% including airdops)
So $LUNA’s staking rewards are ~50% higher than that of $SOL’s, even without the distribution of newly minted tokens. Similar to nearly all blockchains these days, $SOL and $LUNA both offer a network on which protocols can operate.
But $LUNA offers a second product, it’s stablecoins, these include $UST, $KRT, and $EUT. These stablecoins are algorithmically pegged 1:1 with their underlying currencies. $UST to the USD. $KRT to the KRW. $EUT to the EUR.
These stablecoins can always be exchanged at a 1:1 ratio for $LUNA. By this I mean 1 $UST can be exchanged for US$1 worth of $LUNA.
As demand for $UST and other Terra stablecoins increases, they will tend to trade above peg, to counteract this, more $UST needs to be minted until supply is equal to demand. To do this, $LUNA must be burned, hence putting downward pressure on the supply of $LUNA.
When the demand for $UST increases, the supply of $LUNA will decrease.
When the demand for $UST decreases, the supply of $LUNA will increase.
When the demand for $UST decreases, the supply of $LUNA will increase.
What we’ve looked at so far is very significant when looking at each tokens inflation. We know that new $SOL is constantly minted to incentivise the validation of the network and that $LUNA is burned as $UST gains adoption. But what do the real figures look like?
$SOL currently has an inflation rate of 4.72% and is set to decrease by 15% year-on-year (4.01% next year and 3.41% the year after) and will stabilise at 1.5% per year.
$LUNA on the other hand has no set inflation schedule, inflation/deflation depends solely on the change in demand for its stablecoins. Over the past 10 days, ~14.7M $LUNA has been burned. This equates to 12% of the liquid circulating supply, or 3.7% of the circulating supply.
Currently, $SOL has a more complete ecosystem with around 39 protocols compared to $LUNA's 10. However, $LUNA's TVL is sitting at $14.16bn compared to $12.83bn.
However, I believe the flippening will happen sooner than expected, with the launch of new innovative projects on Terra including @astroport_fi, @mars_protocol, @prism_protocol, @levana_protocol, and @WhiteWhaleTerra.
So I guess the question most people are asking at this point is, high could $LUNA actually go?
I wish I could answer this, but it’s almost impossible to answer due to:
- Changes in $UST demand.
- The price of $LUNA when $UST demand actually occurs.
- The growth of on-chain applications and transactions.
- The growth of blockchain as a whole.
- Changes in $UST demand.
- The price of $LUNA when $UST demand actually occurs.
- The growth of on-chain applications and transactions.
- The growth of blockchain as a whole.
Though it’s impossible to make an accurate price estimation, I believe that due to the fact that $LUNA has superior tokenomics when compared to nearly all other layer 1’s, $LUNA could easily achieve $1000 over the next couple of years.
In the longer term, I could see $LUNA go much higher if:
- Governments effectively regulate centralised stablecoins.
- $UST becomes the primary stablecoin within DeFi.
- Other Terra stablecoins such as $EUT, $GBT gain further adoption.
- Governments effectively regulate centralised stablecoins.
- $UST becomes the primary stablecoin within DeFi.
- Other Terra stablecoins such as $EUT, $GBT gain further adoption.
- User layer applications like @alice_finance and @kashdefi gain adoption.
Sources:
$LUNA staking: tpa.smartstake.io
$SOL staking: solanabeach.io
$LUNA burn: terra.smartstake.io
Protocols and TVL’s: defillama.com
Other books sourced from the restricted section in Hogwarts library.
$LUNA staking: tpa.smartstake.io
$SOL staking: solanabeach.io
$LUNA burn: terra.smartstake.io
Protocols and TVL’s: defillama.com
Other books sourced from the restricted section in Hogwarts library.
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