Terra (LUNA) price has lost 31% in the last four weeks, erasing all gains accumulated so far this year, and while the token continues to outperform the broader crypto market by 20%, Terra is struggling. for holding above the $85 support.
Previously, some bullish catalysts included Terra’s USD (UST) stablecoin flipping Binance USD (BUSD) to become the third largest stablecoin on April 18 and the April 26 announcement that Fireblocks, a digital asset custody platform, had seen institutional clients invest more than $250 million in Terra’s decentralized finance (DeFi) ecosystem.
This flow of positive news was not enough to instill confidence in Terra investors and there were also some changes that could have partially dampened the continued influx of deposits into the network.
For example, on May 1, the Anchor Protocol, Terra’s largest DeFi application by deposit, introduced a adjustment semi-dynamic at its previously fixed 20% annualized percentage yield (APY). The Anchor win rate has been reduced to 18% and will be reviewed monthly going forward.
TVL grew, but Dapp transactions decreased
Terra’s main decentralized application metric rose 41% over the past month as the network’s total value locked (TVL) hit an all-time high of 254 million LUNA.
Notice how Terra DApp deposits saw a 77% jump in 2022, reaching the equivalent of $21.2 billion. For comparison, Binance Chain’s TVL currently stands at $9.8 billion, up 9% in BNB terms year-to-date. Avalanche, another DApp scaling solution competitor, saw a 28% increase in TVL in terms of AVAX to reach a value of $7.9 billion.
To confirm whether DApp usage has indeed increased, investors should also look at the transaction count within the ecosystem.
Anchor has a TVL of USD 16.6 billion, equivalent to 78% of the total deposits in Terra decentralized applications. The protocol averaged 70,150 transactions per day last week, which is 15% below the levels seen in early April.
Astroport, a automated market making project, occupies the second position in terms of TVL within the Terra ecosystem, with deposits worth USD 1.6 billion. It should be noted that last week there was an average of 50,650 daily transactions, which represents a decrease of 30% compared to the previous month.
According to data from Terrascope, decentralized asset liquidity app Terraswap had an average of 31,400 daily transactions over the past week. The figure is similar to the levels seen in early April.
Derivative data shows no sign of difficulty
The decreased use of Terra DApps does not appear to have affected the appetite of derivatives traders.
The chart above shows that the open interest for LUNA futures contracts is holding steady at $706 million. This data is essential because a smaller number of futures contracts could limit the arbitration tables and the activity of institutional investors.
Furthermore, Terra has the third largest open interest behind Bitcoin (BTC) and Ether (ETH). For comparison, Solana (SOL) and XRP futures contracts have an open interest of $660 million.
LUNA’s fundamentals remain solid
Although it seems impossible to pinpoint the cause of the LUNA price drop, the decrease in the use of decentralized network applications may partially explain the movement. However, the increase in their smart contract deposits, as shown by the rise in TVL and strong interest from derivatives traders point to a near-term price recovery.
The data suggests that Terra holders are not concerned about the 31% price correction and are more focused on growing the ecosystem versus their competitors. As long as these metrics remain healthy, investors are unlikely to sell at a loss.
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