The Case for Terra LUNA

Investing in Terra LUNA is also an investment in UST, the rapidly expanding decentralized stablecoin that is resistant to censorship.

Stablecoins collectively have a market capitalization exceeding $150 billion and are among the fastest-growing assets in the cryptocurrency sector. These coins are representative of fiat currencies and are essential for cryptocurrency transactions.

The leading stablecoins, USDT and USDC, account for around $120 billion in market value. However, these assets function in a centralized fashion, which introduces risks associated with censorship and external influence.

Amid rising concerns about the over-collateralization of USDT and the risks posed by stablecoins in the financial system, the US government is moving toward regulating these centralized entities, as evidenced by recent directives from the President.

On the other hand, UST's decentralized nature serves as a safeguard against these narratives. Moreover, the overall growth of stablecoins, whether centralized or decentralized, supports UST's performance.

In summary, UST is pegged to $1. To create UST, an equivalent value of LUNA must be burned. For instance, minting $58 of UST necessitates the burning of 1 LUNA at the current price. Additionally, burning UST will mint LUNA; thus, this mint/burn system operates in both directions. Therefore, an increase in UST's market cap leads to a reduction in the circulating supply of LUNA, creating added value for LUNA holders.

The structure of LUNA and UST incentivizes maintaining the UST peg at $1. The recent market downturn has highlighted the effectiveness of this dynamic system, supported by the robust ecosystem on the Terra network, which has now become the second-largest Layer 1 ecosystem after Ethereum, boasting a total value locked (TVL) of $17 billion.

For a deeper understanding of the LUNA/UST relationship, I suggest reviewing the LUNA whitepaper.

UST Use-Case Expansion

Several factors contribute to the increased adoption of UST:

• Initiatives across various chains like Solana, Avalanche, Binance, and Ethereum
• Development within the Terra L1 ecosystem, including DeFi, gaming, and metaverse projects
• Efficient bridging capabilities
• Integrations with centralized exchanges

All charts sourced from Delphi Digital.

Growth of the Stablecoin Market

UST ranks as the fourth-largest stablecoin and has surpassed DAI as the leading decentralized option. The total market for stablecoins grew from $27 billion to $156 billion in 2021.

UST Growth Equals Value in LUNA

Following the Columbus 5 upgrade, Terra eliminated 80 million LUNA (8% of its total supply) to fund the development of various L1 projects, which resulted in a notable increase in activity in November. Terra has quickly benefited from a multitude of projects launching within its ecosystem.

Delphi Digital forecasts that UST's dominance could rise from 6% to 9.62% in 2022, potentially reaching a market cap of approximately $23 billion by the end of the year. This growth would likely lead to a significant percentage of LUNA being burned, depending on the LUNA price at the time.

Other Considerations

The Terra Network is contemplating establishing a reserve of $1 billion UST aimed at maintaining the peg of UST.

At the current growth rate of UST, Delphi Digital estimates that LUNA's price could rise by $10 every two months.

UST shows potential to be the stablecoin for the Cosmos ecosystem, which currently lacks a stablecoin.

Governance proposals on Terra are in the works to integrate UST into Curve pools.

According to Do Kwon, the founder of Terra, three essential elements for broader UST adoption include:

• A seamless bridging experience
• Substantial liquidity on major DeFi platforms
• Native decentralized applications (dApps) that utilize UST

Conclusion

The primary risk for UST is the potential for de-pegging, but the recent market downturn has demonstrated that UST is well-equipped for liquidation scenarios. The potential creation of a UST reserve would further solidify this perspective.

There are numerous strategies to ensure continued growth within the ecosystem, and Terra is poised to benefit from broader UST adoption. Furthermore, the supply of LUNA is rapidly diminishing, which will likely amplify price movements of the token. With the expanding Terra ecosystem, the narrative surrounding US regulation of centralized stablecoins, and UST's integration across multiple chains, LUNA is positioned as one of the top investment prospects for 2022.

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Crypto Market Update

Bitcoin (BTC) experienced a surge leading up to the FOMC press conference, reaching a peak of $38,900. However, it has since retraced, closing the day around $36,500.

Ethereum Dominance (ETH.D) saw a rebound, reaching a high of 18.42% as traders cautiously sought exposure beyond Bitcoin.

The total crypto market (TOTAL) ended the day down by 1.70%. While traders are gravitating toward quality projects, they are avoiding lesser-known assets.

Near Protocol (NEAR) increased by 14%, reaching $11.84. The protocol has been fostering a robust developer community to build its ecosystem, positioning NEAR as a strong candidate for growth in 2022.

Fantom (FTM) dipped by 3.8% today amid rumors of an impending listing on Coinbase. While this is speculative, major projects often see substantial buying pressure upon listing on the leading US exchange.

Bond-style rebase projects continue to experience capitulation (7D):

• OMH $68.39 -38%
• TIME $548.12 -60%
• WAGMI $37.93 -49%
• FHM $31.43 -53%

Notable Gainers (24h): - THETA $2.82 +8.5% - LRC $1.11 +7.4% - KDA $5.72 +6.3% - MATIC $1.64 +5.5%

Bitcoin Fear and Greed Index: 20 Extreme Fear

“Bitcoin” Google Trends: 33

Bitcoin Options Max Pain (Jan 20): 45K

Learn how to utilize The Fear and Greed Index for investment strategies.

Major Crypto News

Congressman McHenry has called for a "broad, bipartisan consensus" regarding the regulation of digital currencies, advocating for a shift away from oversight by the CFTC and SEC, arguing that neither agency's jurisdiction is firmly established in law.

The IMF has advised El Salvador to revoke Bitcoin's designation as legal tender, citing "significant risks" to financial stability, integrity, and consumer protection.

Meta's stablecoin initiative, formerly known as Libra and now Diem, is reportedly considering a sale after encountering significant obstacles in its plans, facing strong opposition from the US government.

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Thank you for reading!

Gabi

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