After talking a little back and forth with ScreenTag in the comments of one of my posts I got inspired to write this post. So first and foremost I would like to say thank you to ScreenTag, so thank you! We have been talking about the possibility to save LUNA and UST. And during these discussions ScreenTag was talking about LUNA´s worth. And I then did my own rough calculations. And that is what we will be discussing in this post. What is the actual worth of LUNA in its current state?
Does LUNA have a value as it stands now, is the coin not worthless?
I would argue that LUNA actually has some value to it still. This is despite the events that transpired the last week. Events that saw the value of LUNA plummet, basically falling to $0, or extremely close to it. And what is this that gives LUNA an actual value you might ask? The main reason is that the ecosystem still has around 1,5 billion in reserve.
By that fact alone all the LUNA should at least be valued at 1,5B. But given the recent hyperinflation, it still might not be a lot per LUNA Token. But let us do the match quickly. By going off of the confirmed number of LUNA in circulation, 6,531,854,118,077. We can get an estimate of what each LUNA probably should be worth. So let's do that.
*Crunching some numbers*
This would mean that each LUNA would have a value of $0.00022964, instead of the actual number which is $0.00024156 at the time of writing this. That actually would indicate that the current price of LUNA is a bit inflated. But it also would mean that the 1,5B is all that would factor in determining LUNA´s value. But that is hardly the case. But let us take a look at some of the other things that could impact the value of the token.
I would argue that at the current state of things. The second-largest thing to be able to impact the price of LUNA is its community. Or as they also like to be known as, the LUNAticks. IF the token holders have little faith in the projects it means they will constantly be looking for ways and opportunities to exit the project. Leaving most of the number of tokens "floating" without a home. This in turn would put downwards pressure on the token.
It all comes back down to the old tried and true "supply and demand". If the supply is scarce, this means the people who have what others want can get a higher price if they sell. But it also means that the opposite is true. If a thing is available in abundance. You will be hard-pressed to get your money's worth. As the buyer can just go buy the thing cheaper someplace els.
This however does not fit with the price calculations above. If this were to be the only other factor that impacts the price of LUNA. The calculated price should be lower, and not higher than what we calculated. This must indicate that there is some other factor that is adding value to the LUNA token. Let us try and see if we can figure out what it can be, shall we?
The TERRA Ecosystem
The TERRA Blockchain, where LUNA is the main token. Has over the last couple of years seen incredible growth in the number of projects that are based around the Blockchain. This means that for these projects to be able to function, they are dependent on the LUNA token. If for nothing else then fo pays the Gas associated with making transactions on the Blockchain.
This means that with a vibrant and flourishing community surrounding the Blockchain. The basic token would have a constant demand on it. Meaning that there would be a buy pressure. And if we apply the same supply and demand logic here as we did above. It means this will increase the price of the Token. This could then be used to explain the discrepancy in the Market value of the LUNA Token compared to our calculations.
But is this all there is to it? I would argue that there is one more factor to take into consideration. And this one is a bit of a mystery if you will.
What happened to the 3,5B Bitcoin reserve?
The Luna Foundation Guard have prior to the crash bought a massive 80,394 BTC, or roughly 3,5B worth. As the depeggin of UST then unfolded. This reserve was deployed over a number of transactions to buy up UST in an attempt to defend the UST dollar peg. But so far, all we know is that the Bitcoins made their way to the two exchanges, Gemini and Binance.
But we know nothing about how the funds actually were used. And if there might be any unused funds still available in those exchanges. Do Kwon has promised to provide proper documentation showing how these funds were used. But so far this documentation has not been prevented. Is it likely that there is another 1,5B sitting there just waiting to be used? In a sense means the $0.00022964 value we calculated should be doubled. No, This is not very likely. And I would argue that if it were found out that a large part of the 3,5B is sitting unused. This would most likely kill any remaining trust in the LUNA community. And for sure be the nail in LUNAS cofin.
But until we know for sure how the funds were used, and more importantly if they were used. It is still any once guess. But even if all the money were used in buying UST tokens, there could still be some value we possibly could be able to gain from them.
Have I missed anything major or minor for that matter? Have I made any glaring errors? If so please let me know in the comments down below. And also share your thoughts on the current value of LUNA compared to what you think it should be worth. And of course, this is not to be construed as financial advice encouraging you to buy or sell LUNA. It is simply a thought experiment and exorcises the mind. =)
If you would like to read more about the two proposals put forth to try and save what can be saved you can read about them here:
I have also just started a new series of weekly posts, that will go live every Friday. You can catch the first step here:
See you on the interwebs!
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