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Terra Luna Crashes - Effects And Future Plans

Stablecoin holders around the world including Nigeria, expressed their sadness as Terra Luna crashes. Today's LUNA to NGN or Naira rate is 8,725.71, down - 56.2 percent from yesterday's rate of 19,912.59. As of May 9, 2018, the so-called stablecoin TerraUSD (UST) was no longer tied to the US dollar after nearly 18 months of maintaining a stable value.

Not only did the decoupling lead to the collapse of UST and Terra (LUNA), but also played a role in the huge decrease that bitcoin and the greater cryptocurrency market experienced, from which they have yet to fully recover.

Terra Luna Cryptocurrency

An animated Terra Luna Logo
An animated Terra Luna Logo

The Terra chain laid the groundwork for the Anchor Protocol, a lending and borrowing system. A return of roughly 19 percent was given out of Terra's reserves to investors who invested UST in the Anchor Protocol. Some have voiced concern that Kwon's plan for stablecoins could run like a "gigantic Ponzi fraud" because of the Anchor Protocol's high yielding mechanism. On the Terra blockchain, there was also Mirror Protocol. The goal of this initiative was to create and sell financial derivatives that were nearly identical to the actual stock market.

Terra, a blockchain system and payment platform for algorithmic stablecoins, is being developed. In 2018, Terraform Labs co-founders Do Kwon and Daniel Shin were responsible for the project's construction. Its most well-known offerings are the Terra stablecoin and the Luna reserve asset cryptocurrency that goes along with it. There are several algorithmic stablecoins under the Terra brand, and each of these is called after the currency to which it is linked. For example, the value of TerraUSD (UST) is based on the US dollar. Luna is the fundamental foundation asset for Terra, and it is also utilized as a governance token for users to vote on different ideas brought forward by the Terra community. The UST stablecoins were not backed by U.S. dollars; rather, they were designed to maintain their peg using a sophisticated formula that is known as a "burn and mint equilibrium." With the usage of two tokens (UST and LUNA), this strategy ensures the stability of one token (UST) and absorbs any volatility that may occur.

Terra Luna's Fall

Luna's Logo on fire while plumetting
Luna's Logo on fire while plumetting

The price of the coin fell from $116 in April all the way down to just one penny on Thursday, after having plummeted significantly earlier in the month. It has plummeted even further, and by the end of the weekend, traders were only willing to pay a fraction of a cent for it. At the time that this was written, the value of one luna was about equivalent to one eighth of a penny. An implosion of this kind has occurred in the past for small-cap memecoins, but it has never occurred for anything as massive as luna, which just one month ago had a market cap of more over $40 billion. In the past, an implosion of this kind has occurred for small-cap memecoins.

It has become the subject of much speculation as to what caused UST to lose its peg in the first place; one popular conspiracy theory indicates that someone purposefully dumped $350 million in UST; however, this assertion is not backed by any evidence. If LFG did this, it would be forced to sell its bitcoin, causing the price of bitcoin to fall. Holding short positions in Bitcoin could be advantageous for anyone who achieves the aforementioned goal.

TerraUSD (UST), a cryptocurrency known as a stablecoin because its value is intended to remain constant at $1, is no longer trading at $1, in case you were unaware. When something is offered for one dollar but ends up costing more, the scenario is virtually never positive. Furthermore, the value of the crypto coin known as LUNA, which is used to back UST, has almost completely evaporated. Because of the quantity of publicity given to these losses, this is very likely the umpteen millionth piece you have read about UST.

Why Luna Plummeted?

On Saturday, May 7th, it all began. As soon as the UST was unstaked, which means it was removed from the Anchor Protocol, hundreds of millions of dollars worth of it was traded. There is a lot of debate about whether this was a reaction to the recent rise in interest rates, which has had a negative impact on cryptocurrency prices, or a more deliberate attack on Terra's system.

Massive sales have resulted in a decrease in pricing to 91 cents. There was an attempt made by traders to take advantage of an arbitrage opportunity by swapping $1 worth of luna for 90 cents worth of UST. Only $100 million in UST can be burned for luna per day.

Investors, already wary owing to the market's bearish situation, hurried to liquidate their UST holdings when the stablecoin failed to retain its peg. The first depeg caused it to swing between 30 and 50 cents, but it has since steadied at less than 20 cents and is projected to continue to decrease in the near future. From a high of $18 billion at the beginning of May to its present value of $2 billion, its market capitalization has fallen significantly since then.

Why It Matters?

Terra LUNA logo with a man holding a tablet
Terra LUNA logo with a man holding a tablet

Because of Luna and UST alone, a total of at least $15 billion worth of cryptocurrency was destroyed. Despite the fact that these accounts cannot be verified, there have been reports of people who lost a considerable amount of money as a result of the collapse of UST harming themselves. Despite this, it is abundantly clear that a great number of people endured major financial setbacks as a result of the company's demise. The information provided by Boroughs of Fortis Digital indicates that the destruction is not confined to the ecosystem of Terra. Those who had invested in UST and luna were obliged to sell huge sections of their crypto holdings in order to recoup some of the losses, which drove down the market as a whole. UST and luna were both cryptocurrencies.

Second, it casts doubt on the steadiness of other stablecoins, such as Bitcoin, which is a source of concern. In contrast to tether and USDC, UST was a stablecoin that was based on an algorithm. Tether was accused of misrepresenting the public about how much money it has stowed away in dollars by New York Attorney General Eric Schneiderman a year ago.

Terra Luna's Future

Although it had no real value, UST's demise saw its value fall below $0.10. As a result of the crash, the value of LUNA went from more than $110 to less than one tenth of a penny. As a result of the sell-off, they suffered a collective loss of $60 billion.

In the current trading environment, when Bitcoin and Ethereum (ETH) are nearing 18-month lows, the market's confidence in these cryptocurrencies has been undermined. During the March 2020 pandemic sell-off, the Crypto Fear & Greed Index, a measure of market sentiment, was at its lowest level.

"Optimal stages" have been spelled forth by Terraform Labs founder and CEO Do Kwon in an interview, according to Terraform Labs. The strategy includes a hard fork, but only if the Terra community agrees to it.

People Also Ask

What Is Terra Luna Coin?

Staking currency Luna absorbs the volatility of the Terra stablecoin market. It is used for mining and governance. Luna and Terra miners (referred to as "validators") are paid transaction fees for recording and verifying transactions on the blockchain.

What Is Happening With Terra Luna?

Following the tremendous loss investors experienced when the supply-demand ratio of the algorithmically constructed stablecoins crashed, several crypto exchanges, including Binance and Coinbase, blacklisted Terra-Luna currencies.

Is Terra And Luna The Same?

According to the company's tweet, the existing blockchain will be known as Terra Classic (LUNC), and the new blockchain will be known as Terra (LUNA). The Luna token is brand new, and it should not be confused with the previous one of the same name.

Conclusion

On Friday, Do Kwon proposed a solution to Luna's problems. Terralabs' CEO advocated forking Terra, resulting in the establishment of a new blockchain. After obtaining a snapshot of current Luna and UST holders, 900 million Luna tokens would be distributed, with the remaining 100 million going to a "community pool to support future upgrades." Essentially, it is an attempt to return the blockchain to its pre-depegging state. Many individuals, including some experts, are skeptical about the plan's success.

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