Terra’s Columbus 5 upgrade will introduce deflationary pressure for LUNA and will increase the compatibility between Terra and other blockchains.

The Terra blockchain has a mission to improve the efficiency of the global payment system and it just recently completed the Columbus upgrade. The upgrade has major ramifications for the entire ecosystem as its stablecoin TerraUSD and Terra’s utility token Luna surged more than 10,000% this year to become the 11th crypto by market cap. Terra’s Columbus 5 could stimulate demand for UST and Terra by opening it up to new networks and decentralized projects. The deflationary aspect of LUNA could pump eh price if everything goes according to plan.

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Terra doesn’t use one asset alone. It uses two and what’s good for UST is good for LUNA but for different reasons. This is because UST is an algorithmic stablecoin which means it leverages the second token LUNA to maintain an equal value to the US dollar. Luna, as Terra’s utility token, is minted when the demand for UST is low and burned when the demand for UST rises. The upgrade comprises several major technological changes to TErra but the biggest one is its utility token LUNA that is burned to mint Terra’s stablecoin is not being transferred to the community pool after burning. All LUNA used to mint UST Will be turned permanently and the existing community pool will be burned as well.

The swtich to burning LUNA is used to mint UST will further boost LUNA’s value as increased UST transaction volume as an outcome that seems following the upgrade requires more LUNA burning. All of this will put deflationary pressure on the asset akin to EIP-1559’s effect on Ethereum. Terra is already a part of the Cosmos ecosystem and now integrated Cosmos’ Inter Blockchain communication protocol known as Stargate which increased compatibility with Cosmos so this means that data can be shared between Terra and other Cosmos blockchains like Solana and Polkadot. The Stargate integration opens Terra up to hundreds of dapps in the Cosmos ecosystem and it will be even more useful.

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LUNA 24-hour Price Chart (Source: Coingecko)

The Colombus-5 upgrade increases yield paid to those that delegate their LUNA to proof of stake validators on the Terra network as those contributing to the network will receive swap fees which get generated anytime someone trades with the Terra Station wallet app so the fees had been burned. The upcoming Wormhole bridge has been set in motion by Columbus 5 and it will connect Terra with Solana’s network so the UST stabelcoin will be usable in the SOL ecosystem. It is important for crypto investors to remember that UST is highly experimental and controversial as it is backed by only an algorithm that uses LUNA’s value to maintain the stable price for UST.

Source: dcforecasts.com


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