LUNA Breaches $90 As Degenbox And Reserve FUD Eases

The Terra ecosystem seems to be one of the better performers in the current crypto market rebound that has seen its close relation with stocks fade. With Bitcoin rallying, Luna and Anchor, the native tokens of the Terra ecosystem, and the DeFi platform Anchor protocol shot up. 

The strong performance of the ecosystem shows investors’ confidence following earlier concerns about the sustainability of Terra’s UST stable coin. This has caused the total value locked within the Anchor Defi platform to hit a new all-time of $11.7 billion, according to Defilama.

Investor Confidence Restored As Luna Foundation Guard Refills Anchor Reserve

The Luna Foundation Guard (LFG) followed through on its promise to replenish its Anchor protocol reserve by $450 million. The need to step in arose to ensure that the DeFi lending and borrowing Protocol could keep its comparatively high-interest rate of 20%.

The Anchor Protocol, regarded as the heart of the Terra ecosystem, saw its yield reserve plummet by more than 80% since December. The lack of borrowing appetite threatened to shut down the entire Terra protocol before the intervention of the LFG. With the whole crypto market in a downturn, borrowers were unwilling to participate in the protocol over fears of losing out. However, the Anchor reserve now sits at $476M (in TerraUSD) but continues to shrink by about $2 million daily.

The cash injection has led to a restoration of investor confidence that has seen more depositors return. In January, when the Anchor yield reserve fell to $38 million, the TVL plummeted from $8.8 to $6.83 billion in three days. However, data from Defilama shows it started to recover after hints that Terra Labs would refill the depleting reserves. Following the cash infusion on February 18, the TVL climbed higher to $8.3 billion, and then as deposits poured in, it shot up to its new ATH.

Consequently, the return of depositors has also caused a rise in the number of borrowers needed to sustain the ecosystem. Reports show that borrowing has increased to almost $2.5 billion UST, a 58% gain from the $1.5 billion recorded in late January.

Join our Telegram group and never miss a breaking digital asset story.

Long Term Sustainable Fixes by Anchor Protocol

Although the cash injection by the LFG is a temporary fix, measures are being put in place to ensure a more sustainable solution to the problem. Anchor Protocol announced in a February 17 blog post a proposal introducing vote-escrowed ANC (veANC) instead of ANC staking. 

The vote escrow was pioneered by Curve.Finance is a mechanism that locks tokens for a preset time period. The longer tokens are locked up, the more weight they gain for governance voting and earning stake rewards.

Meanwhile, the LFG  announced the completion of a $1 billion private token sale to create a decentralized UST Forex Reserve in Bitcoin. The sale, which is one of the biggest in the industry, ensures that the possibility of a bank run for the UST stable coin is minimized. This adds an extra layer of protection to the UST peg using less correlated assets to the Terra ecosystem.

Finally, the Anchor protocol is also expected to go cross-chain as another measure to tackle the declining reserves on the platform. Avalanche, Solana, and the Cosmos ecosystems will have the ancho protocol deployed. This will see a boost in income and staking rewards while reducing LUNA’s dominance in Anchor collateral to below 40%

As a result of all these measures being put in place, both the LUNA and ANC tokens have performed very well recently. According to Coinmarketcap, Anchor Protocol’s governance token has gained over 30% in the past seven days and is currently trading at $4.95.  Meanwhile, LUNA is also up 43% in the same period and is trading at around $93.

The strong performance of the Terra ecosystem is not new or surprising at all. Last year, it experienced a remarkable 2000% surge over 60 days. With measures being put in place to solve challenges, investors can confidently hope for greater returns on their investments.

Do you think the Anchor Protocol can become sustainable with the new changes being made to it? Let us know your thoughts in the comments below.