Terra’s Defi value hits record high $21.8 billion, what does it mean for Luna

Terra, the second-largest Defi blockchain, saw its total value locked (TVL) hit a new high on Tuesday amid a rising number of deposits.
Terra's Defi value hits record high $21.8 billion, what does it mean for Luna?

Defi Llama data showed that TVL on the Terra blockchain increased by roughly 5% to a new high of $21.8 billion. The blockchain is now behind only Ethereum in terms of TVL, although the gap is astronomical ETH’s TVL is $81.6 billion.

The two major Defi liquidity platforms on Terra, Lido and Anchor Protocol, had the biggest increases in TVL, about 8%, and 10%, respectively. Anchor also maintains its dominance in Terra’s Defi market, accounting for 76% of TVL.

Terra’s native token, LUNA, increased in tandem with the blockchain’s TVL.

Terra’s increasing Defi value good for LUNA

Given that a bulk of engagement with Terra’s platform occurs through its native token, LUNA tends to profit from the increased activity. In the past 24 hours, the token has gained 8.5% and is trading at $96.46.

The recent gains also helped LUNA surpass Ripple (XRP) to become the seventh-largest cryptocurrency at a $33.5 billion market capitalization The token saw outsized trade volumes of $2.5 billion in the last 24 hours.

Because the majority of TVL inflows were concentrated towards Anchor Protocol, the platform’s governance token, ANC, also increased by 9%. Anchor presently has one of the highest deposit yields in the Defi space, at 20%. The platform’s high yields are a major driver of inflows to it.

Trading volumes for its stablecoin, UST, have increased as a result of increased engagement with Terra’s Defi platform. The total amount of USTs in circulation is now above $18 billion.

Concerns over sustainability

While Terra’s Defi interest has grown in recent weeks, there is still concern about its sustainability.

Anchor, for an instance, has a disproportionately high number of depositors compared to borrowers, which means that paying a 20% yield on all deposits will eventually deplete the platform’s reserve.

While the community has taken steps against this by implementing a dynamic yield, the number of depositors continues to grow at a staggering rate. This could also eventually drive yield to market-average levels, making Anchor less appealing to investors. The platform is also very exposed to liquidity shocks because of its outsized volume of deposits.

Terra's Defi value hits record high $21.8 billion, what does it mean for Luna?

Despite this, Terra founder Do Kwon has been consistently increasing UST reserves to avoid a situation like this. Kwon plans to back UST with $10 billion in Bitcoin.