3 key metrics are signaling that the price of Terra (LUNA) is preparing for a rebound

Terra (LUNA) price is down 31% over the past four weeks, erasing all year-to-date gains, and while the token continues to outperform the broader cryptocurrency market by 20%, Terra is struggling to rally above the 85 to hold $ .

Previously, some bullish catalysts included stablecoin Terra’s USD (UST), which flipped Binance USD (BUSD) to become the third-largest stablecoin on April 18, and the April 26 announcement that Fireblocks, a digital asset custody platform, served institutional clients over 250 million Investing dollars looked into Terra’s decentralized finance (DeFi) ecosystem.

This positive news flow wasn’t enough to inspire confidence among Terra investors, and there were also some changes that may have partially dampened the continued flow of deposits into the network.

Luna/USD at Binance (blue) vs total crypto cap (orange). Source: TradingView

For example, on May 1st, the Anchor Protocol, Terra’s largest DeFi application by deposits, introduced semi-dynamics setting to its previously set 20% annualized percentage return (APY). The anchor earn rate has been reduced to 18% and will be reviewed monthly going forward.

TVL grew but Dapp transactions declined

Terra’s key metric for decentralized applications rose 41% over the past month as the network’s total value (TVL) hit an all-time high of 254 million LUNA.

Terra Network Total Value Locked, LUNA. Source: Defillama

Notice how Terra’s DApp deposits saw a 77% increase in 2022, reaching the equivalent of $21.2 billion. For comparison, Binance Chain’s TVL is currently $9.8 billion, up 9% in BNB terms year-to-date. Avalanche, another competitor for DApp scaling solutions, saw a 28% TVL increase in AVAX terms to a value of $7.9 billion.

To confirm whether DApp usage has actually increased, investors should also analyze the number of transactions within the ecosystem.

Number of anchor transactions. Source: Terrasco.pe

Anchor holds a TVL of $16.6 billion, which accounts for 78% of Terra’s decentralized application deposits. The protocol averaged 70,150 transactions per day last week, down 15% from early April levels.

Number of Astroport transactions. Source: Terrasco.pe

astroport, a automated market-making project, holds the number two TVL in the Terra ecosystem with $1.6 billion in deposits. Notably, last week saw an average of 50,650 transactions per day, down 30% from the previous month.

Number of Terraswap transactions. Source: Terrasco.pe

Terraswap’s decentralized asset liquidity application had an average of 31,400 daily transactions over the past week, according to Terrascope data. The number is similar to the levels from early April.

Derivatives data shows no signs of distress

Solana futures aggregate open interest. Source: coin jar

The reduced use of Terra DApps does not appear to have affected derivatives traders’ appetites.

The chart above shows that the open interest of the LUNA futures contracts is stable at $706 million. This data is crucial as a reduced number of futures contracts could limit the activity of arbitrage desks and institutional investors.

Additionally, Terra has the third largest open interest behind Bitcoin (BTC) and Ether (ETH). For comparison, Solana (SOL) and XRP futures contracts hold open interest at $660 million.

LUNA’s fundamentals are still solid

While pinpointing the cause of LUNA’s price drop seems impossible, the decline in the network’s decentralized app usage may partially explain the movement. However, the surge in its smart contract deposits, as evidenced by the TVL surge, and solid interest from derivatives traders point to a near-term price recovery.

The data suggests that Terra owners aren’t worried about the 31 percent price correction and are more focused on growing the ecosystem relative to its peers. As long as these metrics remain healthy, investors are unlikely to sell at a loss.

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