Prices for Terra’s LUNA token have hit record highs since Saturday, after the blockchain’s highly anticipated Columbus-5 upgrade went live last Thursday.
The rally reaffirmed investors’ confidence in Terra, a base-layer blockchain project similar to the Ethereum blockchain, after some questioned whether excitement about the Columbus-5 upgrade was already priced in back in August. Terra is now the No. 11 cryptocurrency by market capitalization, valued at nearly $19 billion.
The Columbus-5 upgrade is significant for investors because it enabled the Inter-Blockchain Communication (IBC) standard, which will let users easily transfer LUNA, the TerraUSD (UST) stablecoin, and other assets from Terra to other networks and vice versa.
“Columbus-5 is a big upgrade for Terra,” Ryan Watkins, a research analyst at Messari, told CoinDesk. IBC “will allow Terra to export TerraUSD and position it to become the de facto stablecoin of the Cosmos ecosystem.” Cosmos is an interoperability project that aims to build a network of independent blockchains communicating via IBC.
LUNA is part of an algorithmic balancing system that helps stablecoins running on Terra maintain parity with fiat currencies. At press time, LUNA was changing hands at $46.91, up 10.54% in the past 24 hours, according to Messari. The price hit a record high earlier Monday, at around $49.43.
Another significant aspect of Columbus-5 that’s driving up LUNA’s price is a change in the network’s token economics, according to crypto research firm Delphi Digital.
Previously, when UST traded above $1, users could send $1 worth of LUNA to a community pool and receive 1 UST in return – a trade that helped to bring the stablecoin’s price back in line with the U.S. dollar.
Now, instead of being transferred to a community pool, LUNA is burned whenever UST is minted. About 23.4 million LUNA tokens (worth more than $1 billion at the current price) previously sent to the community pool were burned the day of the upgrade, Delphi Digital noted in its newsletter Monday.
“The supply burn places deflationary pressure on LUNA making it increasingly scarce,” Delphi Digital said. “This was a key driver for recent price action.”