Terra is currently ranking as the second-largest network after Ethereum in total value locked (TVL). The network has seen steady growth in the TVL, surpassing other major networks such as Solana and BNB Chain.
DeFiLlama shows that Terra currently has a TVL of $21.74 billion. It is still far back from Ethereum, which is taking the lead with $107.3 billion in TVL.
Terra’s dominance in DeFi is growing
Terra is now securing its position as a rapidly growing DeFi tool kit developed on the Cosmos blockchain. Besides the growth in TVL, the LUNA token has also been performed quite well given the recession across the cryptocurrency market.
The uptick in LUNA’s price could be attributed to increasing the number of investors pouring crypto into the Terra network to support their DeFi projects. LUNA has been up by 62.1% during the past 14 days, and the growing DeFi activity could see the price of LUNA hit new record highs.
During the same time that LUNA has been soaring, the Anchor protocol has also increased. DeFiLlama shows that the protocol has soared by over 38% during the past month. Anchor is the largest project on the Terra network. It is a money market protocol that functions similarly to Aave. It allows users to earn up to 19.49% on their UST.
Besides the growth of LUNA’s prices due to increased DeFi activity on Terra, the token has also been gaining due to the listing on the FTX exchange last month.
Terra Bitcoin reserve
The other reason LUNA’s prices have been gaining is the $1 billion Bitcoin reserve. The Luna Foundation Guard (LFG) announced a private token sale to raise these funds. The token sale was spearheaded by Jump Crypto and Three Arrows Capital. The funds will be used to create a UST Forex Reserve.
The LFG is committed to the growth of the Terra network. Through this reserve, the LFG wants to provide more stability for the UST stablecoin. The reserve will ensure that the value of one UST is pegged to $1.
The UST Forex Reserve is non-correlated, whereby every time $1 worth of UST is created, $1 worth of LUNA is destroyed. On the other hand, $1 UST is destroyed if $1 LUNA is created. However, this mechanism has been faulted as unsustainable due to the heavy reliance on the market forces of demand and supply.
To guarantee that the price of UST will be pegged at $1, the LFG is adopting a Bitcoin Reserve. The market cap of UST has been increasing steadily with time; hence setting a $1 billion Bitcoin reserve will be beneficial to stabilize the prices of the stablecoin. UST’s market cap currently stands at over $13 billion; hence, a large reserve is needed.
Choosing a Bitcoin reserve to stabilize UST’s price has several benefits. The first is that Bitcoin is resistant to censorship. This will make UST more decentralized than the other stablecoins in the market. Nevertheless, this is the first time such a move is taking place; hence the market is waiting to see if it will work out.
The LUNA community is hyped about the LUNA token and the projects building on the LUNA network. The LUNA project is far from reaching Ethereum in terms of price and TVL. However, it has pulled away from the rest of the market, and the fact that it has surpassed other major network signals that this uptrend could be sustainable. If the adoption continues, Terra could soon become the DeFi project of choice.