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Terra (LUNA) Retreats after a Week of Scaling New Heights and Setting a New All-Time High

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Christmas weekend turned out to be dull for cryptocurrency holders as major coins barely posted significant price movement. Terra's LUNA, which had come off a brief dip on Thursday, raced towards $100 on Friday on the back of upward momentum. The uptrend was, however, cut short as the coin consolidated between $96 and $98 throughout the entire weekend.

LUNA once again saw bullish action early on Monday, this time rising to notch an all-time high of $103.33, according to data from coinmarketcap. In the following hours, the coin dipped before surging briefly and then assuming a downtrend.

One of the year's biggest gainers

The high-performance blockchain protocol Terra is gaining popularity by the day. The protocol started the year as an underdog but has gradually become a serious contender of the best alternative to Ethereum. Terra's LUNA is currently leading the charts of top gainers this year, outshining the old boys like Bitcoin and pups like Solana and Polygon.

The fiat-pegged stablecoin has been on an incredible run this quarter, breaking into the list of the top 10 cryptocurrencies by market capital. Year-to-date figures show that LUNA has gained an overwhelming 12,684%, having started the year trading below $1. LUNA now ranks as the second-largest stablecoin and seventh-largest cryptocurrency with a market cap slightly above $30 billion – down 6.46% in the last 24 hours.

TerraUSD (UST) stablecoin surpasses $10 billion market capital

Terra's leading stablecoin pegged on the dollar UST earlier this week broke into 20th place among largest coins after hitting a market capital of $10 billion.

TerraUSD 3-month market capital chart

The fast-rising coin previously dethroned MakerDao's DAI as the largest decentralized stablecoin at the start of the month and is now within reach of Litecoin and Uniswap's native token. TokenInsights data from earlier this week showed that about $3 billion of the UST in circulation has been pumped in Terra's top DeFi lending protocol, Anchor.

Terra is taking the DeFi sector by a storm: Here's what to note

Terra uniquely leverages the fiat-pegged stablecoin LUNA for its decentralized finance ecosystem. It ranks as the second biggest chain with a total value locked of $17.66 billion, down 12.10% from its all-time high TVL figure as per DeFi Llama. Anchor, the most popular project on the chain, leads the way accounting for nearly half (47.14%) of the total value locked.

Terra's TVL chart and top protocol's dominance ratio

In an interview with Taylor Locke on CNBC Make It, Bitwise's Matt Hougan noted LUNA's latest rally describing it as “an absolutely spectacular run.” Hougan, the chief investment officer at the digital asset management firm, observed that LUNA had followed a contrasting path compared to other altcoins in terms of market swings and volatility.

“It's been largely impervious to the recent market volatility, falling less and recovering faster than its peers.”

The Bitwise executive pointed out that LUNA is nonetheless a riskier asset since it regulates its blockchain's stablecoin pegs. This, he explained, is because the coin exists as the ‘shock absorber' for changes affecting stablecoins on Terra. Hougan noted that in a case where stablecoins on the platform became unable to hold their pegs, LUNA could potentially suffer knock-on effects.

Citing this relation i.e. LUNA acting as volatility absorption coin, Hougan concluded that its movement in the market might mirror that of the stablecoins on the platform. He also reckons that adoption is key for the stablecoin to compete against its rivals. According to the Bitwise investment expert, Terra is still in its nascent stage and will need to draw more investors to stay afloat amid depletion of incentives.

What's driving LUNA's price?

Market analysts ascribe LUNA's recent price upsurge to the implementation of burn on Terra as well as negative funding rates. Terra's burn implementation (proposal 44), announced at the end of October, largely borrows a leaf from Ethereum's EIP-1559 proposal.

The burning of tokens in the community pool has previously had a sway on the token price, and experts believe it could be well the case at present. As of Monday this week, a total of 27 million LUNA tokens had been burned so far this month as per data from analytics platform Terra Analytics.

Terra (LUNA) market performance

LUNA is down almost 1% on the day and changing hands around the same level it was last week at such a time.

LUNA/USD trading chart over the last 7 days

Analysts are still confident its bull cycle is yet to come to an end even though the token has retreated and sunk below $90 in recent days. Buyers are seemingly sitting out uncertain when to make their move and resume control. The token plunged to a 7-day low of $81.24 earlier today but has since moved up to reclaim $85.

To learn more about this token visit our Investing in Terra guide.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.