Terra LUNA has been following the crypto market for most of 2021, while towards the end of this year, it has been showing incredible buying pressure. Terra is burning tokens, but what does that mean for the price action? Should it bring deflation?

Terra Daily Chart Analysis – LUNA Heading for New Highs

Terra, which is a smart contract-enabled algorithmic stablecoin project, has been showing incredible bullish pressure since late July. Back then, it was trading at $5, while earlier this month it almost touched $80, despite the crypto market being bearish for more than a month. The pressure still remains bullish, after bouncing off the resistance, and now the price is heading up again, and it will probably make new highs before the end of the year.

There are different reasons for this rally. Terra uses its native token, LUNA, to maintain the price stability of stablecoins, such as UST coin, so that is keeping the demand for LUNA coin up. The total value locked in DeFi has exceeded $14 billion, while funds keep coming, with another large Terra LUNA fund worth $50 million raised by the venture capital firm, Chiron.

But the proposal to burn a large number of LUNA tokens from community pools has had a positive impact. The community passed the proposal early in November, which, at the time, was worth $4.5 billion. The price back then was around $50, while the price is above $70 now, so the value should be higher now. The burn will occur every 800 blocks produced, and its purpose is to adapt the structure of the token for the new Columbus 5 upgrade, which will change the way UST is produced.

The UST coins obtained from the burn will be reallocated to the community pool, and it will be decided later, what should be done with these funds. Since the proposal was voted in, there have already been some swap transactions. Some of these funds will surely go for the decentralized insurance protocol, Ozone, which is built on Terra, and the community will decide on the amount again after the whole stash gets burned. This is the first time in crypto history that such a huge amount of tokens are being burnt, and it is already bringing inflation, hence the bullish momentum in LUNA/USD last week, while most cryptocurrencies were declining.