Is Avalanche worried about an AVAX dump following Terra blowout?

Saif Naqvi
Source: Pixabay

The Terra fiasco caused an unnecessary stir in the market which has rocked everyone’s boat in the wrong direction. Smart contract platform Avalanche is currently concerned about how Terra intends to use their AVAX tokens as the latter’s ecosystem suffers from mass desertion.

Source: Twitter

Talking about the communities concerns on what Terra plans to do with their AVAX holdings, Avalanche said Terra has “disclosed no plans” for the 2 Million AVAX tokens held in its treasury and that the assets were ‘currently immobilized’.

Given the proposed Terra chain fork, LFG has disclosed no plans to use the AVAX… Should any sales be contemplated for the LFG reserves, the Avalanche Foundation is ready to work with LFG on a sensible trading strategy.”

The dramatic downfall of Terra had spilled over to other projects that are facing scrutiny from the community, and investors who have lost a significant chunk of their life savings. It was reported that a few DeFi projects also took massive hits as the domino effect spread across the market.

Hence, it’s hardly comes as a surprise that Avalanche, which allotted $200 Million worth of AVAX tokens to Luna Foundation Guard and Terraform Labs as part of an earlier partnership, is now worried about a cascading effect should Terra decide to dump AVAX to save its sinking ship. Data suggests that LUNA’s reserves showed the remaining balance of AVAX amounted to nearly $60 Million at press time.

Avalanche missing near-term supports on daily chart

Source: TradingView

Hypothetically, if Terra were to completely dump their AVAX tokens on market, the repercussions could be damaging in terms of price. AVAX has traded between $37-$30 since the market wipeout and the next major support was available only around $9.

If an AVAX sell-off triggers FUD and retail investors begin to short the market, the price could be vulnerable to a near 50% decline. The same would drag AVAX back to its August 2021 levels, which was a bit of a safe zone for bullish trades.