Why is Terra (LUNA) Stablecoin Outperforming Dogecoin’s Market Cap?

Paigambar Mohan Raj
Source: Pexels, pngfind, Medium

According to CoinMarketCap data, the market cap of the TerraUSD (UST) algorithmic stablecoin of Terra (LUNA), has surpassed $15 billion for the first time. This development brings the token very close to surpassing that of popular meme coin, Dogecoin, whose market capitalization is at $15.5 billion (approx).

Source: Coinmarketcap

Terra (LUNA) exploded in popularity in the second half of 2021, quickly becoming one of the most popular cryptocurrency ventures.

What’s pushing Terra’s stablecoin above Dogecoin?

Stablecoins are tokens with a fixed price or value, typically pegged to the US dollar. In digital asset markets, they’re employed as collateral for trading or lending cryptos, or as a proxy for cash. Stablecoins are backed by reserves to assure settlements and payments. To back a stablecoin supply, a combination of cash and debt instruments can be utilized as reserves.

LUNA held a private token sale last month to raise $1 billion for its Bitcoin-denominated reserve. When new UST tokens are produced, the native token’s supply is regularly depleted (and vice versa). Arbitrageurs are rewarded for maintaining the stablecoin’s dollar peg by exchanging it for LUNA at a discount. Burning LUNA tokens increases the circulating supply of the stablecoin once it reaches $1.

Terra (LUNA) founder, Do Kwon, recently announced plans to purchase a massive $10 billion Bitcoin for the project’s stablecoin reserves. Aside from the sheer amount of the purchase, the news was more significant than first appears.

Sensei Algod, a crypto trader, bet a million dollars last week that Terra (LUNA) would sell below $88 on March 14, 2023.

LUNA fans sometimes called “Lunatics”, aren’t the only ones who are enthralled. Many doubters argue that the coin is overvalued, despite the fact that the Terra ecosystem is long-term viable. In January, MakerDAO founder Rune Christensen criticized the stablecoin as a “solid Ponzi.”

At the time of publication, LUNA was trading at $88.92.