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

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.

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.”

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%.

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.”

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

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Featured Image: Shutterstock/Tithi Luadthong