Terra, the second-largest DeFi blockchain, saw its total value locked (TVL) jump to a record high on Tuesday amid an increasing number of deposits.
Data from DeFi Llama showed that TVL on the Terra blockchain jumped nearly 5% to a record high of $21.8 billion. The blockchain is now behind only Ethereum in terms of TVL, although the gap is astronomical- ETH’s TVL is $81.6 billion.
Lido and Anchor Protocol, the two largest DeFi liquidity platforms on Terra, saw the biggest jumps in TVL, about 8% and 10%, respectively. Anchor also continues to dominate Terra’s DeFi market, accounting for nearly 76% of TVL.
LUNA, Terra’s native token, rose in tandem with the blockchain’s TVL.
Terra’s growing DeFi value positive for LUNA
Given that a bulk of engagement with Terra’s DeFi platforms happens through its native token, LUNA tends to benefit from increased activity. The token added 8.5% in the past 24 hours, and is trading at $96.46.
The latest gains also helped LUNA overtake Ripple (XRP) to become the seventh-largest cryptocurrency, at a $33.5 billion market capitalization. The token saw outsized trading volumes in the past 24 hours, at $2.5 billion.
Given that a bulk of TVL inflows were concentrated towards Anchor Protocol, the platform’s governance token, ANC, also jumped 9%. Anchor currently offers among the highest yields for deposits in the DeFi space, at 20%. The high yields are a key driver of inflows to the platform.
Increased engagement with Terra’s DeFi platforms also pushed up trading volumes for its stablecoin, UST. Total UST circulation is now above $18 billion.
Questions over sustainability
But while Terra’s DeFi interest has surged in recent weeks, it has also come with a layer of skepticism over its sustainability.
Anchor, in particular, has a disproportionately large number of depositors over borrowers, meaning that eventually, paying a 20% yield on all deposits is going to bleed the platform’s reserves.
While the community has taken measures against this, by implementing a dynamic yield, the number of depositors are continuing to rise at a staggering pace. This could also eventually bring the yield to market-average levels, making Anchor less lucrative to invest in. An outsized number of deposits also makes the platform extremely vulnerable to liquidity shocks.
Still, Terra founder Do Kwon has been consistently boosting UST reserves to avoid such a scenario. Kwon intends to back UST with $10 billion in Bitcoin.
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