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Terra (LUNA), the native token on the eponymous blockchain, overtook Cardano (ADA) on Wednesday to become the sixth-largest crypto token by market capitalization. LUNA also hit a record high as its DeFi adoption soared.
LUNA jumped as much as 5%, briefly hitting a record high of $119.10. The token is on a tear after hitting its 2022 lows in February. A bulk of its rally can be attributed to the growing popularity of UST and the popularity of the Terra blockchain as a DeFi platform.
The gains also saw LUNA avoid a broader pullback in the crypto market.
DeFi growth a key factor in LUNA rally
Terra’s popularity in the DeFi space is supported by the community’s efforts to maintain liquidity. Terra is currently the second-largest DeFi blockchain by total value locked, which stands at $21 billion.
This in turn boosted the use of LUNA, given that it is the primary medium for transacting on the chain.
Terra’s Anchor Protocol (ANC), the biggest protocol on the chain, has also surged in popularity by offering the biggest yields in DeFi, at nearly 20%. Although the platform recently voted to reduce yields, it still commands over $16 billion in TVL- the third-highest among DeFi platforms.
Additionally, the Terra community regularly burns LUNA to mint UST- a move that reduces LUNA’s overall supply and boosts its price. According to data from Terra Analytics, nearly three million tokens were burnt in the past five days. This brings LUNA’s total supply down to a record low of 351 million tokens.
Terra eyes stablecoin dominance
Terra founder Do Kwon has repeatedly expressed his goal of making UST the most popular stablecoin. To this end, the Terra community has consistently acquired Bitcoin (BTC) to use as a reserve for UST- a move that has also boosted LUNA’s popularity.
The goal is not to become the largest stablecoin on the Terra blockchain, so we expand to say the Solana, Avalanche, Ethereum, and Polygon ecosystems. We plan to be everywhere where there are developers and users.
Kwon said in a recent interview.
UST is the largest algorithmically-backed stablecoin, which uses a mix of reserves and tokenomics to maintain its dollar peg.
Kwon intends to accumulate as much as $10 billion worth of BTC to use as reserves. This move would be positive for LUNA, as it ensures enough liquidity on all of Terra’s DeFi protocols.
So far, the Terra community has acquired at least $3 billion worth of Bitcoin.