LUNA Outpaces ADA and SOL — Why Terra’s PoS Mechanism Trumps Cardano and Solana
Key Takeaways
- LUNA outpacing SOL and ADA.
- A market pundit says it was inevitable as Terra has better fundamentals as a PoS blockchain.
- LUNA may have even more upside potential according to Santiment.
The crypto market has seen a major reshuffling. Terra (LUNA) has continued to outperform Solana (SOL) and Cardano (ADA) in market valuation. Per data from CoinGecko, LUNA is now the 7th largest crypto, with a market capitalization of over $34 billion, while SOL and ADA clock in at 8th and 9th respectively.
What has been driving LUNA’s rise?
Several factors have been named as the reason for the impressive run LUNA has seen. One of these is the unique use case and mode of operation that Terra has.
Terra is a proof-of-stake blockchain that lets users create stablecoins pegged to fiat currencies. These stablecoins leverage the network’s seigniorage mechanism. Also remarkable is that the stablecoins can be completely decentralized and regulation resistant unlike other stablecoins such as USDT, USDC, and DAI.
The flagship stablecoin on Terra is the dollar-pegged Terra USD (UST). UST is currently the 4th biggest stablecoin in the crypto market with a valuation of over $13 billion. LUNA and UST play key roles in the Terra ecosystem. LUNA is both the PoS token and the reserve asset used to adsorb volatility in the price of UST if it deviates from $1.
The proof-of-stake consensus mechanism that the Terra blockchain utilizes is also unique in its way. According to “@Asparagoid,” a market pundit on Twitter, Terra’s PoS mechanism trumps those of both Solana and Cardano. This is because staking rewards on Terra do not inflate the supply of LUNA as they are based on network value. Stakers on Terra are rewarded in UST from gas fees and swapping fees accrued from transactions.
While LUNA is deflationary due to this, ADA currently has an inflation rate of around 5.7% per year. The inflation rate of ADA will slowly reduce to 0% when all 45 billion ADA tokens are issued. Similarly, SOL issuance began at an inflation rate of 8% per year but is set to decrease every year till it settles at 1.5% per year.
The market pundit points out that being inflationary, SOL and ADA are unsustainable, unlike LUNA. This is because they punish non-stakers by diluting the worth of their holdings.
Was LUNA’s ascendance foretold?
The climb LUNA has seen is coming after the blockchain has been growing in popularity. Santiment previously pointed out that the social media mentions of Terra has been on the rise. The social sentiment tracker said it expected to see at least a 20% to 30% increase in the price of LUNA.
However, Terraform Labs, the developers behind the blockchain, has been dealing with scrutiny from the SEC. Last week, a US federal judge ruled that Do Kwon, the CEO of Terraform Labs, should respond to the SEC subpoena filed in November.
LUNA continues to surge even as the market is watching for the outcome of the case. On the day, LUNA is trading at around $93, up 6.77%.
Read more: https://zycrypto.com/luna-outpaces-ada-and-sol-why-terras-pos-mechanism-trumps-cardano-and-solana/
Text source: ZyCrypto
