Despite the security risks exposed by the biggest DeFi hack ever, the price of SOL and LUNA, two tokens owned by Solana and Terra respectively, hit all-time highs on Monday.
The increase in the market value of these tokens, which came at a time when the market capitalization of all crypto assets crossed the $2 trillion mark for the first time since May earlier this year, is an indication that despite the hack, investors are still very confident about the industry, including layer 1 protocols.
According to available data, SOL, the native token of Solana, a public blockchain that enjoys the support of Sam Bankman-Fried, the founder of crypto exchange FTX, hit $74.
Terra, a balancing system Stablecoins use to maintain their peg to the US dollars also saw its value reach a new ATH of $26.58.
What Led to the Solana and Terra Price Surge?
Multiple analysts claim that the rise in the price of the two tokens is a reflection of the increased demands for higher scalability in the crypto market. This scenario has also led many investors to believe that Ether’s impending migration from a proof-of-work (PoW) blockchain to a proof-of-stake (PoS) blockchain could be delayed.
According to Adam James, a senior analyst at OKEx Insights, the NFT-driven mania presented in the Ethereum space is starting to spill over into its layer 1 competitors.
In his words:
“Because the alternative layer 1 [protocols] havent all had pieces of positive development news at the exact same time, it stands to reason that speculation is the primary driver pushing funds into less-fleshed-out blockchain ecosystems.”
Denis Vinokourov, head of research at Synergia Capital, says the aggressive push by Solana following its test release of Wormhole, a cross-chain communication protocol between Ethereum and Solana, is very timely.
“The need for [a] scalable network is needed right now, as opposed to years away as is the case for Ethereum given it’s much needed undergoing transition to PoS,” Vinokourov said.
The launch of the Wormhole’s main network has also occurred as new protocols that allow digital tokens to be transferred across multiple blockchains have become particularly vulnerable to attacks: last week, cross-chain DeFi site Poly Network was attacked with losses worth more than $600 million, the biggest DeFi hack to date.
On the other hand, Jeremy Ong, the vice president of business opportunities at research firm Delphi Digital, posits that the timing of Coinbases listing of UST might have played a significant influence on the surge of LUNAs price.
Per his statement, the Coinbase listing for UST probably gave UST a lot more credibility and demand amidst regulatory FUD about stablecoins. He continued that this is the first time a reputable exchange like Coinbase will be listing an algorithmic stablecoin like UST.