What happened
The best-performing large-cap cryptocurrency by a country mile this week has been Terra ( LUNA 0.17% ). Today, Terra continued this incredible upward trend, surging 6.3% higher over the past 24 hours, as of 12:10 p.m. ET. This surge also propelled this token into seventh spot amid all cryptocurrencies in terms of market capitalization, just above Cardano and Solana.
This move comes as bulls continue to flock to Terra’s unique algorithmic stablecoin network. This past week, Terra announced that Luna Foundation Guard, a nonprofit supporting the Terra ecosystem, had raised a $1 billion Bitcoin fund for Terra’s UST stablecoin. This Bitcoin-denominated reserve diversifies Terra’s reserves while also providing support in times of distress, should Terra’s peg come under pressure.
Image source: Getty Images.
So what
Investors have reason to continue to be excited about this development. The crypto world moves at light speed, so it’s kind of hard to fathom thinking about a catalyst lasting more than a week. Alas, investors looking for stablecoin exposure appear to like Terra’s UST and LUNA tokens right now.
The unique relationship between UST (its stablecoin) and Terra (its reserve currency, which is burned or minted to keep UST on its peg) is interesting. However, this Bitcoin fund represents what could be the future of the stablecoin space, giving investors something to be excited about.
Now what
There are many reasons why investors may be taking a closer look at stablecoin options right now. Stablecoin demand has spiked in recent days, due to the Russian invasion of Ukraine and the sanctions that stemmed from these actions. Investors looking to hedge this geopolitical risk certainly have reason to flock to a token like LUNA in this environment, as a derivative of stablecoin (UST) demand.
The ability for LUNA, and Terra’s overall reserves, to stabilize UST and benefit from this rising stablecoin demand is certainly intriguing. For now, this will be a top token many investors are likely to watch, as algorithmic stablecoin options gain notoriety in the market.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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