Today we are going to explain what is Luna coin and why it is so popular nowadays. The native currency of the Terra blockchain, Luna coin is up over 23% in the past week, according to CoinGecko. Now ranked number 9 among the most valuable cryptocurrencies by market capitalization, Luna hit an ATH on Sunday of over $103 and is presently trading at around $97. Luna was priced below $1 at the start of the year.
Matt Hougan, chief investment officer at Bitwise Asset Management told CNBC Make It:
“It has been on an absolutely spectacular run. It’s been largely impervious to the recent market volatility, falling less and recovering faster than its peers.”
Despite the hype around Terra and its digital currency Luna, it’s critical to investigate and understand the dangers before putting any money into cryptocurrencies since they are seen by financial experts as high-risk investments. Now let’s learn what is Luna coin.
What is Luna coin?
In 2018, Terraform Labs and its co-founders Do Kwon and Daniel Shin launched the Terra blockchain, which powers a decentralized finance (DeFi) ecosystem and creates algorithmic stablecoins. Stablecoins, which are cryptocurrencies that are kept fixed against reserve assets such as the US dollar, are frequently employed in DeFi applications such as lending and borrowing.
“Terra is the hot dot among the cool kids in crypto right now. People love the team behind Terra, and they love all the various applications being built on it right now.”
-Hougan
With $18 billion in total value locked, Terra recently became the second-largest DeFi protocol behind Ethereum, according to DeFi Llama.
Terra uses a proof of stake approach, with validators checking transactions based on the amount of coins they possess. According to supporters of the proof of stake model, it is less energy intensive and has a lower environmental impact than other systems.
Luna’s holders are granted governance rights and voting power for the protocol, since Luna is Terra’s native token. But investors should understand that Luna is also used to regulate Terra’s stablecoin pegs.
“Luna is in the center of the shock absorption process if something goes wrong with the stablecoins on the Terra platform.”
-Hougan
What are the risks of Luna coin?
Financial experts generally advise against investing more than you can afford to lose in all cryptocurrencies since they are volatile. Before putting money into a digital currency, consider and understand the potential for big price swings.
The riskier situation is that investors might suffer losses if Terra’s stablecoins are unable to keep their pegs, according to Hougan. Luna serves as a sort of volatility dampening mechanism for Terra’s stablecoins, so its performance could mirror that of the stablecoins.
Whatever the situation, Terra’s stablecoins have done well thus far, including dollar-pegged UST. It’s impossible to know what the future holds for any commodity or whether it will be able to withstand significant price swings or a bear market.
In addition, it’s important for investors to be aware of any regulatory issues within a protocol.
The Securities and Exchange Commission (SEC) is conducting an inquiry into whether Terraform is selling unregistered securities. This demand is connected to Terrain’s Mirror Protocol, which creates synthetic representations of equities, not the actual Terra protocol.
How does Terra compare to Ethereum?
“Terra is gearing up to be a serious Ethereum competitor. Terra will need to see continued user growth and adoption, even after incentives have dried up, to really compete with Ethereum more broadly.”
-Hougan
According to DeFi Llama, Ethereum is the most popular DeFi protocol, with over $162 billion in total value locked. The Terra ecosystem incorporates 13 DeFi protocols, whereas Ethereum has 373. This way you’ve learned what is Luna coin and why it is really important for the future of crypto sector.
Luna coin price
Luna coin is valued at $82.64 at the time of writing.
