Wonky Mars Protocol launch shows ecosystem expansion may not add to network value

New protocols are launching day by day on totally different networks within the crypto area and the pattern is more likely to proceed via this yr. When trying on the prime 5 networks by whole worth locked (TVL) — Ethereum (ETH), Terra (LUNA), Binance Good Chain (BSC), Avalanche (AVAX) and Solana (SOL) — according to information from DeFiLlama, Ethereum have 579 protocols (together with L1 and L2); Terra has 25, BSC has 348, Avalanche and Solana have 187 and 64 protocols, respectively. The low variety of protocols and excessive TVL from Terra absolutely stand out because the outlier right here.

Terra’s TVL reached an all-time excessive at $20 billion in December 2021 earlier than dropping to $13 billion throughout the January 2022 crash. Thus far, the ecosystem has managed to spice up its liquidity again to $26 billion.

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With solely 25 protocols constructed on the chain, Terra has attracted sufficient TVL to grow to be the second largest community after Ethereum. The current announcement of backing UST (Terra’s stablecoin) with $1 billion price of Bitcoin (BTC) reserves and the Mars protocol launch coincide properly with the sudden rise in LUNA worth on the finish of February 2022.

The rise within the chain’s governance token is commonly a sign of confidence within the community and the protocols, however does a brand new protocol launch at all times add worth to the community and stimulate person exercise and engagement?

Let’s check out how the value of LUNA modified when new protocols launched on Terra; then examine how probably the most lately launched Mars and Astroport protocols impacted native token costs, person engagement and LUNA worth.

LUNA is the software that ensures the UST-USD peg

Earlier than trying into the correlation between LUNA worth and the brand new protocol launch, you will need to perceive the LUNA-UST mechanism that ensures the peg of stablecoin UST to USD.

LUNA is used as a counterpart to UST to keep up the value peg of UST to USD. When UST is price greater than $1, it means there’s a higher demand for UST than the availability within the Terra ecosystem. So the protocol incentivizes contributors to burn LUNA and mint UST to fulfill the growing demand for UST till the worth of 1 UST is the same as $1. Quite the opposite, when UST’s worth is decrease than $1, the availability of UST is bigger than the demand so UST will likely be burnt and LUNA will likely be minted till UST’s worth reaches $1 once more.

By regulating the availability of LUNA within the ecosystem, Terra can successfully preserve UST pegged to USD. This mechanism additionally causes LUNA’s worth to extend because the demand for UST will increase.

LUNA worth is very correlated with new protocol launches

Fairly often throughout the preliminary pre-launch phases of a brand new protocol, there’s a sudden improve in demand for UST. It’s because contributors want to get hold of airdrop incentive tokens from the brand new protocol and they’re typically requested to lock up UST to offer sufficient liquidity for the protocol when it launches.

The growing demand in UST from contributors throughout pre-launch phases of the brand new protocol causes extra UST to be minted and extra LUNA to be burnt, leading to a sudden improve in LUNA worth throughout these pre-launch phases.

Right here is an instance of the lately launched Mars protocol, the place LUNA worth jumped from sub $50 to over $60 in two days proper after the brand new protocol pre-launch phases began.

Right here is one other instance of how LUNA worth went up from sub $60 to over $90 in December 2021 proper after Astroport’s pre-launch phases began.

The brand new protocol launch up to now two current circumstances did assist push up LUNA’s worth, which could be seen as a constructive impact on the Terra community. However to know whether or not they add worth to the Terra ecosystem, one must additionally have a look at the protocol’s token worth and person engagements after the launch.

ASTRO worth and quantity after the launch

Astroport gathered $90 million within the lockdrop, however the token worth of ASTRO has skilled a downturn after the launch of the protocol because of the bearish market atmosphere initially of 2022. The value has picked up because the starting of March and now’s buying and selling its launch valuation.

The day by day variety of swaps on Astroport has been steadily growing because the launch for about three months, indicating lively person engagement on the platform after the airdrop.

The overall buying and selling quantity transacted on Astroport has additionally proven a powerful growing pattern because the launch, which peaked in the course of March.

The Astroport launch was profitable and the submit launch information additionally present that the platform has been in a position to keep person actions and engagements. The story of Mars protocol is nevertheless fairly totally different.

Mars worth and quantity after the launch

Instantly after the Mars launch on March 7, 2022, MARS token worth dropped off a cliff inside an hour from 1.65 UST to 0.7 UST. That is very totally different from the value response proper after Astroport’s launch. So what occurred to MARS?

It seems that the protocol couldn’t load efficiently within the net browser on the time when it was scheduled to go reside on March 7, 2022, 11 am GMT. Customers who tried to say the airdrop tokens via the protocol’s web site failed to take action and needed to wait till the web site grew to become useful.

Nevertheless, refined customers who knew the way to work together with the Terra chain straight referred to as the declare rewards technique on Terra station and managed to say MARS forward of the non-tech savvy customers. They dumped the tokens instantly out there, inflicting a direct drop in worth.

To elucidate a bit extra intimately how one might declare MARS by interacting with Terra chain, the investor first must know Mars protocol’s airdrop contract handle, which is publicly obtainable on etfinder; then they should know which technique within the code to name on Terra Station to say the rewards, which is the tough half.

For the reason that protocol simply launched, the code is commonly not obtainable within the public area for folks to search out the declare technique. However a wild guess many of the tech-savvy buyers had was that Mars protocol was forked from Astroport. So the declare technique was extremely doubtless the identical as Astroport’s. It turned out to be true and these buyers managed to say the MARS airdrop utilizing the identical operate “claim_rewards_and_unlock” on the chain.

Three hours after the official launch time, Mars protocol’s web site was nonetheless not functioning and the airdrop MARS nonetheless couldn’t be claimed from the web site. The value of MARS had already dropped to $0.64 from $1.65 — a 60% drop in three hours and nothing could possibly be achieved if the investor didn’t know the way to work together with Terra chain.

Protocol remains to be not working… and $MARS are getting dumped like trash…

— E.Hu (@elenahoolu) March 7, 2022

Let’s take a look on the two main merchandise on Mars protocol proper after the launch. Pink Financial institution, the saving and lending area, has failed to keep up person engagements after the airdrop. The variety of transactions peaked on the third day after the launch to virtually 5,000 a day and has been dropping since then. The day by day quantity in USD has additionally been reducing since day 1 from $212 million to $13 million as of March 27.

Fields is the area in Mars protocol for yield farming methods the place customers can present liquidity to ANC-UST, LUNA-UST and MIR-UST. Fields’ historic transaction and quantity after the launch present the same story. The product struggles to keep up the identical degree of exercise because the launch day and the variety of transactions is 1/8 of what it was on the peak whereas the amount in USD is lower than 1/30 of the launch day.

Though it’s not sure that the incident on the launch affected Mars protocol’s person engagements and confidence, the info exhibits the protocol has been struggling to draw volumes and actions because the launch.

A brand new protocol launch doesn’t essentially at all times add worth to the community, as proven within the comparability between Astroport and Mars, which have very related pre-launch methods however very totally different outcomes submit launch.

Incidents on the launch day jeopardize not solely the protocol, however might additionally have an effect on person confidence within the ecosystem. An airdrop incident permitting solely the tech savvy buyers to say first will drive away the overwhelming majority of future buyers. New protocols launching on Terra chain sooner or later ought to make higher efforts to forestall such incidents, in any other case buyers’ long-term pursuits and trusts might evaporate earlier than one might think about.

The views and opinions expressed listed here are solely these of the writer and don’t essentially mirror the views of Cointelegraph.com. Each funding and buying and selling transfer entails threat, you need to conduct your personal analysis when making a choice.