The tokenomics of $LUNA and it’s growth potential

In a very tough market condition over the course of the last few months, $LUNA has shown immense strength and gone against the wind of market sentiments.

This show of strength has a lot to do with tokenomics, fundamentals and future growth of the project, all this whilst adding a lot to investor confidence and boosting overall sentiment.

LUNA is available for trading on CoinDCX in the following pairs: LUNA/USDT, LUNA/BUSD, LUNA/INR, LUNA/BNB, LUNA/ETH & LUNA/BTC

chart sourced from CoinDCX Pro app

First let us look at the tokenomics of Luna to understand the growth better and whether that growth is sustainable in the long run, also how LUNA affects UST and vice versa:

  • UST is the stablecoin of Terra and it is directly affected by LUNA and its demand. So as UST grows, LUNA is burned to support that growth.
  • The above tokenomics has led to the supply of LUNA decreasing. This has to do with the aggressive growth of UST over the past year and that in turn has fielded the upward price action of LUNA
  • Until now 20% of the total supply of LUNA has been burnt to mint the terra stablecoins (there are more in their bag apart from UST)

We can also follow the amount of circulating Luna as well as the amount being burnt to get an idea of how much supply reduction we need to take into account. Here is the supply burn in the last 10 days.

chart sourced from Terra Analytics by Smart Stake

The above chart shows the supply burn of LUNA burned in the last 7 days: 9th March-16th March,2022

The lines above in the chart represent:

  • Yellow line: Circulating supply
  • Purple line: Stake from Circulating supply
  • Green line: Liquid Circulating supply
  • Red line: Total Luna burnt

Another metric we can note here is how the Liquid Circulating Supply is actually a lot smaller than the Total Circulating Supply. That has to do with people locking up their Luna in staking contracts, this makes for less sell pressure as the lock-in period for staking Luna is for 21 days.

Since the supply is decreasing the market cap of Luna is not the same as the last time it was at this price. This also means that it takes less money to move the coin (up or down). Lower supply = more volatility, but it also makes it easier to move the price up if people are unwilling to sell. That’s why the liquid vs illiquid supply metric can help us gauge that. The demand for UST makes for an inherent demand for LUNA as it needs to be burnt for UST to grow so we can take part of the demand side of the equation from UST growth. As we know supply and demand are the main factors for price appreciation.

Understanding these tokenomics we can move onto recent news that has impacted on the price.

Luna Foundation Guard raised 1 billion for BTC backing UST.

What does this mean?

This capital will be used to create a new reserve that will act as a safety release mechanism for UST redemptions in the event of major selloffs in crypto markets. I view it as a safeguard for investors if market conditions get really shaky.

This adds trust in UST as many of the worries come from it being an algorithmic stablecoin. Returning to the mentioned above, UST growth makes for Luna supply squeeze.

This raise was also one of the largest that has existed in the crypto space and shows confidence amongst some of the biggest players in the space. Investor confidence has soared to new heights because the reserve is being backed by big names like Jump Crypto, Republic Capital, GSR, Three Arrows Capital, Tribe Capital, DeFiance Capital and Republic Capital. There were also other unnamed investors, but the big names have won the trust.

5 year tie-up with the MLB (baseball) team the Washington Nationals.

Important pointers on why this tie-up matters:

  1. The stadium will have branding for terra (first protocol not exchange to have this in the real world).
  2. The promise to implement terra payments in the stadium, this acts as a case study for crypto usage IRL, especially usage of the terra stablecoin.
  3. The baseball team is in Washington, the important thing is that it’s in the capital of the US, this gives access to lobbyists, politicians and more for the legalization and adoption of crypto.

Now let’s take a look at 2 other important developments that have happened in the last month:

  1. UST on the AVAX network
  2. Launch of MARS Protocol

Mars protocol, why does a protocol matter?

“Money markets help to efficiently direct the flow of savings and investment in the economy”

Mars will behave as a black hole for UST, first with the lockdrop (UST will be locked) and then with the possibilities for people to use the protocol and create more liquidity for their assets. As witnessed with recent pumps on other protocols such as AVAX, FTM and Polygon. One of the major catalysts for inflow of funds into the network was access to a money market. Up until now the only option on Terra was Anchor. However, Anchor only allows for 2 types of collateral and is more a savings protocol than a money market. With Mars protocol the collateral types are expanded and thus the demand and use for UST is expanded. It allows for more versatility and more options for users to hedge in an ecosystem.


Do these developments justify a recent upward surge in prices of LUNA compared to the rest of the market?

Short answer, yes.

The argument is that as a “bear market” looms and people flee to stables, then UST will continue to grow. As it is explained at the beginning of this article, UST growth makes for a supply shock effect on the Luna token. Moving forward it will be important to monitor not only the Luna price by itself but if there are divergences between the price action of Luna vs the growth of UST.

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Mohnish Isaac Kariappa

Mohnish Isaac Kariappa

I make use of advanced Technical Tools and On-Chain Data to make crypto easy to understand for everyone in the crypto community. #CoinDCXpathbreaker