Terra (LUNA) price is down 31% over the past 4 weeks, erasing all YTD gains, and Terra struggles to hold above $85 even as the coin continues to outperform the broader cryptocurrency market by 20% support level.
Previously, some bullish catalysts were Terra’s U.S. dollar (UST) stablecoin flipping Binance USD (BUSD) to the third-largest stablecoin on April 18, and the April 26 announcement that digital asset custody platform Fireblocks’ institutional client investment exceeded more than $250 million into the Terra decentralized finance (DeFi) ecosystem.
This positive flow of news was not enough to instill confidence in Terra investors, and there are some changes that may have partially dampened the continued inflow of deposits on the network.
For example, on May 1, Anchor Protocol, Terra’s largest DeFi deposit app, made a semi-dynamic adjustment to its previously fixed 20% annualized percentage yield (APY). The streamer earning rate has been reduced to 18% and will be reviewed monthly in the future.
TVL grows, but Dapp transaction volume drops
Terra’s main DApp metric has grown 41% over the past month as the network’s total value locked (TVL) hit an all-time high of 254 million LUNA.
Note how Terra’s DApp deposits will grow 77% in 2022 to $21.2 billion. In comparison, Binance Chain’s TVL is currently $9.8 billion, up 9% year-to-date in BNB terms. Avalanche, another competitor to DApp scaling solutions, saw its AVAX increase its TVL by 28% to $7.9 billion.
To confirm whether DApp usage is effectively increasing, investors should also analyze the number of transactions within the ecosystem.
Anchor holds $16.6 billion in TVL, equivalent to 78% of Terra dapp deposits. The protocol processed an average of 70,150 transactions per day last week, 15% below its level in early April.
Astroport, an automated market-making project, ranks second in terms of TVL in Terra’s ecosystem with $1.6 billion in deposits. Notably, last week saw an average of 50,650 transactions per day, a 30% drop from the previous month.
According to Terrascope data, the average daily transaction volume of the Terraswap decentralized asset liquidity application was 31,400 transactions in the past week. This figure is similar to the level in early April.
Derivatives data shows no sign of trouble
The reduced usage of Terra DApps does not appear to have affected the appetite of derivatives traders.
The chart above shows that open interest in the LUNA futures contract was steady at $706 million. The data is crucial because a smaller number of futures contracts could limit the activity of arbitrage desks and institutional investors.
Additionally, Terra has the third largest open interest after Bitcoin (BTC) and Ether (ETH). By comparison, Solana (SOL) and XRP futures contracts hold $660 million in open interest.
LUNA fundamentals remain solid
While it seems impossible to pinpoint the reason for the LUNA price drop, a decrease in the use of the network’s DApps could partially explain the trend. However, an increase in its smart contract deposits (as shown by an increase in TVL and good interest from derivatives traders) suggests a near-term price recovery.
The data suggests that Terra holders aren’t worried about the 31% price correction and are more concerned with the growth of the ecosystem than competitors. As long as these metrics remain healthy, investors are unlikely to sell at a loss.
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