Get the scoop on finance - sign up for mobile alerts
Altcoins
| On
March 13, 2022

Top Trader Issues Crypto Warning, Says One of Ethereum’s Biggest Competitors Heading for Severe Correction

By Daily Hodl Staff

A closely followed crypt trader is predicting a deep corrective move for one of Ethereum’s most explosive competitors.

Pseudonymous trader Light tells his 149,400 Twitter followers that he’s shorting Terra (LUNA) with a price target at $51.

ADVERTISEMENT

He believes the decentralized finance (DeFi) payment network will suffer due to its reliance on the Terra-based stablecoin TerraUSD (UST).

“Short LUNA/USDT from $98. Swing failure double top in an alt bear market and narrative is bankrupt – artificial Ponzi yield when no one wants to borrow stables.”

Source: Light/Twitter

Terra is a blockchain network that allows users to mint stablecoins such as TerraUSD (UST) by burning its native asset LUNA. UST owners can either convert their stablecoin back to LUNA or deposit their holdings to lending platform Anchor Protocol (ANC) and enjoy a 19.5% annual percentage yield (APY).

To sustain Anchor Protocol’s nearly 20% APY, analytics firm IntoTheBlock says the borrowing rate for UST stands at 13%.

ADVERTISEMENT

Light believes the prevailing bearish sentiment in the crypto markets will deter investors from borrowing UST, rendering Anchor Protocol’s 19.5% APY unsustainable in the long run. In such a scenario, investors might convert their UST to LUNA with the intention of selling the top Ethereum (ETH) competitor.

At time of writing, LUNA is exchanging hands for $87.10. A move to Light’s target suggests a downside potential of over 41%.

In an effort to keep the economy of the seventh-largest crypto asset healthy, Do Kwon, the chief executive of Terraform Labs (TFL), reveals that the Terra developer has donated 12 million LUNA tokens worth $1.2 billion.

“TFL has donated 12 million additional LUNA to Luna Foundation Guard (LFG)…

The funds will be burned to mint UST, and thereafter used to grow LFG’s reserves. At current prices, this reflects another 1.2 billion incoming addition to the UST reserves.”

ADVERTISEMENT

Terra taps into its UST reserves to pay for its lucrative APY whenever demand for borrowings is low.

Don't Miss a Beat – Subscribe to get email alerts delivered directly to your inbox
Check Price Action
Follow us on X, Facebook and Telegram
Surf The Daily Hodl Mix
&nbsp
Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any losses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

Featured Image: Shutterstock/Tithi Luadthong