https://ift.tt/32yY7ow CNBC Tells Investors About the Risks of Investing in Terra’s Native Token

Recently, CNBC’s “Make It” looked at the risks of investing in $LUNA, the “hot” token that the “cool kids” love to invest in.

$LUNA is the native token of algorithmic stablecoin platform Terra.

According to Binance Research, Terra is a Proof of Stake (PoS) blockchain. They also say that $LUNA is “used in the issuance of stablecoins (TerraSDRs), as a price stability mechanism, as well as for staking and network governance.”

Work on Terra, which was developed by South Korean blockchain company Terraform Labs (founded in January 2018 by Daniel Shin and Do Kwon), started in January 2018, and the Terra mainnet launched on 23 April 2019.

According to the CNBC article, which was published on 27 December 2021, although $LUNA started 2021 at below $1, it was trading around $97 at the time the article was written.

Matt Hougan, chief investment officer at Bitwise Asset Management, told the Make It team:

“It has been on an absolutely spectacular run. It’s been largely impervious to the recent market volatility, falling less and recovering faster than its peers.“

Hougan went on to add:

“Terra is the hot dot among the cool kids in crypto right now,” Hougan says. “People love the team behind Terra, and they love all the various applications being built on it right now.“

The article also pointed out that last month Terra “became the second-largest DeFi protocol behind Ethereum, according to data provider DeFi Llama.”

CNBC says that although $LUNA’s holders are “granted governance rights and voting power for the protocol”, investors “should understand that Luna is also used to regulate Terra’s stablecoin pegs”, which according to Hougan means that means that $LUNA is “in the center of the shock absorption process if something goes wrong with the stablecoins on the Terra platform.”

Although in general investing in cryptocurrencies is risky, according to Hougan, in the case of $LUNA, “the bigger risk” is that “investors could be subject to losses if Terra’s stablecoins are unable to hold their pegs.” He also mentioned that $LUNA “acts as a sort of volatility absorption mechanism for Terra’s stablecoins, so Luna’s performance may correspond with that of Terra’s stablecoins.”

CNBC’s article went on to say that although “Terra’s stablecoins, including dollar-pegged UST, are performing well now,” it is not possible to “predict the future performance of any asset and whether it will be able to withstand high volatility or a bear market”, and then there is regulatory risk.

CNBC says that U.S. Securities and Exchange Commission (SEC) is “currently investigating Terraform over whether it is selling unregistered securities” and that this subpoena is “related to Terraform’s Mirror Protocol, which offers synthetic versions of stocks, and not the Terra protocol itself.”

$LUNA is currently the nineth most valuable cryptoasset with a reported market cap of around $32.6 billion.

According to data by TradingView, on Binance, currently (as of 20:30 UTC on January 1), $LUNA is trasing around $90.06, up 4.99% (vs USD) in the past 24-hour period.

DISCLAIMER

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

IMAGE CREDIT

Image by “jillianwashere” via Pixabay