The token burn comes as the supply of Terra’s stablecoin, UST, has increased by roughly 14.75 percent in the last month.
In February, Terra (LUNA) was one of the best-performing financial assets. Geopolitical tensions dominated the month, with negative consequences for the crypto market.
LUNA Separates from Cryptocurrency Market
At the end of the month, the price of LUNA had risen by a little more than 75% to $91.50 UTC. In comparison, the percentage performance of other popular tokens, primarily Bitcoin (BTC) and Ether (ETH), was roughly 12.25 percent and 9%, respectively, over the same time period.
Surprisingly, LUNA’s profits in February concentrated on the last day of the month. Terra token increased by 26% on February 28. BTC and ETH, for example, both rose 14.50 percent and over 11.50 percent on the same day.
Even while positive at 0.09, LUNA’s correlation with Bitcoin has been declining recently after peaking at 0.81 on February 21.
In February, the LUNA/BTC pair increased by nearly 56% to 21,171 satoshis. It shows that traders sought protection in the Terra token as the link between Bitcoin and a gloomy stock market strengthened, reaching 0.70 earlier this year.
The answer could be found in Terra’s token economy. It could explain why traders looked at LUNA as a temporary safe haven in the first place.
29 Million Terra Token Depleted
Terra Protocol reportedly burnt 29 million LUNA tokens valued at $2.57 billion. The supply of TerraUSD (UST) increased by almost 14.75 percent as a result of this. TerraUSD (UST) is a stablecoin supported by LUNA rather than the US currency.
An increase in UST supply is seen as a bullish driver for LUNA by traders. The fundamental reason for this is the so-called UST-LUNA token model. Terra, in example, has a flexible monetary approach in order to keep UST’s USD peg. When the value of UST rises above $1, Terra creates an incentive its users to burn LUNA and manufacture UST.
The value of LUNA, on the other hand, lowers when UST supply contracts due to a slowdown in the burning mechanism. Generally, the value of LUNA increases in lockstep with the supply of UST.
Terra’s technical outlook seems to be slanted to the upside due to a prolonged “bull flag” breakout move.
LUNA’s bull flag arrangement appears to be nearing completion. It is now looking for a run up to $120, which, if achieved, would be a new high for Terra.
Nonetheless, the Terra token’s path of least resistance in the long run remains upward. As of February 28, 2022, the currency’s year-over-year performance against the dollar was almost 1,200 percent.