How Pylon Protocol alone could drive +14% increase in UST demand
TerraUSD Demand Forecast through Monte Carlo Simulation
It’s been a few weeks since Pylon Protocol launched its native governance token ($MINE) through its flagship investment platform, Pylon Gateway. The clever design of the platform utilizes fixed-rate APY of Anchor Protocol to provide a safe, no-loss investment with UST deposits that earns investors project tokens and governance rights. Wave 1 of the token sales was a huge success, raising 2M UST in less than 2 hours, with Wave 2 of the token sales accumulating over 14M UST deposits at the time of writing. We believe that successful project launches on Pylon Gateway will siphon the circulating UST increasing the demand up to 14% or more.
Rise in UST Demand
On the day of Anchor Protocol Launch (Mar 17, 2021), we saw a surge of demand in UST, temporarily raising the price of UST to 1.08USD on KuCoin.
Investors were stacking UST on their Terra wallet, to swap the much anticipated project’s governance token at the time of launch. The noticeable spike in trading volume in KuCoin, although temporary, shows how launch of a Terra project can significantly drive UST stablecoin demand. We predict that such demand will be amplified with Pylon Gateway’s novel Vesting Deposit Pool, as explained below.
Pylon Protocol has recently announced that they will be launching Nebula Protocol and Loop Finance through Pylon Gateway, and although the details of the token sales are yet to be released, we think it’s safe to assume that the future token sales will involve a mixture of fixed-rate swap and vesting pool, similar to the $MINE token sale. Based on our Monte Carlo Simulation analysis, we predict that series of successful launch of new projects on Pylon Gateway will drive up to 14% increase in UST demand, in the 6-months timeframe.
Disclaimer: The scope of this analysis is limited to the potential impact of Pylon Protocol alone on the surge of UST demand. It does not cover other external factors, such as UST listing on CEX, increase in MAU of different product on Terra network, or the pure hype of Terra Ecosystem through the team’s effective marketing, PR and WOM. (although we may analyze the different factors in another article) Not Financial Advice. Always DYOR.
The Structure of Pylon Gateway Token Sales
Currently, there are 2 known types of Token Sale mechanism on Pylon Gateway; Fixed Rate Swap and Vesting Deposit. Fixed Rate Swap is the traditional IDO/IEO type of first-come-first-serve token sale with an upper limit. 200M $MINE token were for sale at the price of 0.01UST per token on Wave 1 (Fixed Rate Swap), which were sold out within 2 hours from launch. Meanwhile, Vesting Deposit is a novel token sales mechanism facilitated by Anchor’s fixed-rate APY, which opens the door to investment-via-deposits. During the vesting period, investors’ UST will be deposited in Anchor Protocol with its 20% APY being paid out to the project team. Without the one-time lump-sum raise, the team will be incentivized to continue delivering, while allowing the investors to fully retrieve their initial investment once the vesting ends.
This, we believe, is the true power of Pylon Protocol, which unlocks endless potential of UST growth through Pylon Gateway. For the purpose of this analysis, we have assumed that the future token sales on Pylon Gateway will involve such Vesting Deposit Pool.
Monte Carlo Simulation
To arrive at our forecast, we have utilized Monte Carlo Simulation with multiple inputs, with high and low forecasts involving 10,000 possible simulations. Our Bearish and Bullish forecasts correspond to the 1st and 3rd quartile outcomes from the simulation, respectively.
Our base case forecast estimates that the active launch of new Terra projects on Pylon Gateway could potentially drive cumulative 292M UST demand increase by January 2022. Note that the above figure does not necessarily equate to the amount of newly minted UST but it still gives a good idea on roughly how much UST is in demand with order of magnitude accuracy. Having said that, assuming above demand in fact drives newly minted UST, we predict +14.3% increase in market cap of UST from today through successful operation of Pylon Gateway alone.
Conservatively, our bear case forecast suggests 214M increase in UST demand, while the bull case forecast estimates up to 361M increase in UST demand, which corresponds to 17.7% increase in market cap of UST from today. Predicting the price impact on LUNA would be a discussion outside the scope of this article, but based on the very algorithm, increase in UST demand is surely a positive factor for driving LUNA price up.
The benefit of UST demand increase through Pylon Gateway is two-fold. Pylon Protocol by design, deposits the UST raised in Vesting Token Sale on Anchor Protocol, meaning the demand naturally translates to more locked UST on Anchor Protocol, further bolstering the stability of the network.
At the time of writing, around 35% of UST is locked in Anchor Protocol, with 719M UST locked at 2B UST market cap. We presume that project launches on Pylon Gateway will most likely have different combination of fixed rate swap and vesting deposit token sale. But, assuming that majority of the funding will come through vesting deposit, our base case points up to 43.3% UST locked by Jan 2022. With bearish to bullish range of 41.3% and 44.9% respectively. The positive feedback loop of increased UST demand and higher % UST locked will further drive the scarcity of UST, ultimately minting more UST and driving up the price of LUNA.
Data Points and Assumptions
- UST Market Cap as calculated by Coingecko: 2,045M USD
- Average raised per project: 16.2M UST ($MINE Wave 1 + Wave 2)
$MINE total raised benchmarked as average expected UST raised per Gateway launch - St.Dev raised per project: 282K UST
Calculated using $MINE and $ANC token sales - Average IDO count: 2 projects/month
Expecting Nebula Protocol and Loop Finance launch in end of July. - St.Dev IDO count: 1 project/month
- Monte Carlo Simulation: 10,000 Trials
The scope of this analysis is limited to the impact on UST demand through Pylon Gateway alone.
Conclusion
A strong launchpad platform can certainly bolster the backbone of a blockchain ecosystem, and Pylon Protocol is surely a promising addition to the main pillars of Terra ecosystem. We are thrilled to watch the Terra ecosystem grow and we hope that Pylon Protocol will outperform our expectation in the near future to drive more demand in UST than predicted by our analysis. Shout out to Woojin Lim and the Pylon Team!
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