Can LUNA reach $ 170? This VC thinks he has the basics

The Rockaway Blockchain Fund (RBF) has published an optimistic case about Terra (LUNA) and its growing ecosystem. This project has received a lot of attention in the crypto space and its price reflects the hype with a rally of 8,809% on the 1 year chart.

At the time of writing, LUNA is moving sideways on the lower and upper timeframes, trading at $ 16.67. The 30 month chart stays in the green and is still showing a gain of 6.3%. However, RBF believes there is still room for a massive rally.

LUNA on a downtrend in the daily chart Source: CoinGecko

RBF made an earlier forecast in 2020, expecting Terra and its ecosystem to bring the price of its native token down to $ 5 by 2025. Your prognosis was exceeded many times over. So they set a new price target of $ 170 over the next 5 years. The main reason for LUNA’s deflationary supply:

The higher LUNA price is being driven by a decrease in LUNA token supply, as well as the fact that cash flow is distributed across proportionally less staked LUNA tokens.

LUNA’s combustion and mint mechanism

The Terra ecosystem is based on the supply of stable coins (UST, KRT). Unlike Tether (USDT), USD Coin (USDC), and other similar assets, Terra’s stable coins are decentralized and rely on a stability mechanism to maintain their dollar-pegged price.

This mechanism requires that 1 LUNA must be burned for each UST or KRT embossed. As RBF noted in their report, the mechanism works both ways and could further boost LUNA’s price as Terra takes a larger market share in stable coins.

In April 2021, the total supply of stable coins was $ 75 billion, up 91% since January 2019. In contrast, the US dollar supply has increased 5% since 2000, and the RBF estimates it will reach $ 4.5 trillion by 2025. Stable coins could make up around 20% of this future supply.

Earth LUNA LUNAUSDTSource: Rockaway Blockchain Fund

At this point, Terra could represent around 20% of the stablecoin market. With stronger growth than the other competitors. RBF believes that Terra could become “the leading stablecoin provider” in the same period. The report claims:

In our model, we account for this drop in supply as cash flow for stakers, as the net economic effect is similar. This projected increase in total stablecoin supply is the main value driver for LUNA token price. Past daily coin quantities (left axis) together with the accumulated VAT supply (right axis) are shown in the following table.

Earth LUNA LUNAUSDTSource: Rockaway Blockchain Fund

Terra’s austerity protocol Anchor could be the main driver. Decentralized finance has gained incredible acceptance over the past year. In this sector, commerce is the main use case. However, RBF anticipates that Anchor will be the dominant force in saving. Thus more burning pressure is added in LUNA. The report concluded:

We also believe that the LUNA token may be worth more than $ 170 as the supply of LUNA tokens decreases and the cash flow is spread across less staked LUNA tokens. Investors in the LUNA token may see a further 10 times the invested capital from the current valuation level.

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