WTF Happened To Luna?

May 14

By lourdes


Just a few years ago, Luna was one of the most popular cryptocurrencies. Its price was soaring, and its market cap was in the billions. But today, things have changed dramatically. The crash comes from Luna’s link to TerraUSD (UST), the algorithmic stablecoin of the Terra ecosystem. The coin’s price has fallen from $116 to just a penny, and its market cap has shrunk to just $641 million. As a result of one of the biggest meltdowns in the industry, Binance, the world’s largest cryptocurrency exchange, has halted trading of Terraform Labs’ Terra (Luna) and TerraUSD (UST) tokens on its platform.

What are TerraUSD and Terra Luna?

TerraUSD is an algorithmic stablecoin. Terra Luna (or Luna) is a cryptocurrency that uses complex seesawing mechanisms to keep the same value as the United States dollar. Although TerraUSD is always supposed to be worth $1, the value of Luna can fluctuate. You burn TerraUSD to mint, or create, Luna, and vice versa.

You might be wondering why people would want to burn their tokens into UST? In simple terms, Terra is a blockchain that produces luna tokens (ex., Ethereum’s blockchain creates ether), and to create UST, you need to burn (destroy) luna. The more luna tokens you burn, the lower the supply, which makes the demand greater.

So, what happened?

Essentially, the balance between TerraUSD and Luna broke.

TerraUSD was withdrawn from Anchor (by unknown attackers) in large amounts over last weekend worrying investors and prompting them to sell Luna and TerraUSD. The attackers of this crash knew if they depegged the UST that it would cause destablization in the system.

This crash is so severe because Terra was pegged to somewhat of a stable coin, which means the value of a stable currency is meant to be less volatile than other cryptocurrencies. The UST stablecoin was suppose to retain a value of of one US dollar at all times.

Whatever the cause, the Luna crypto crash has been devastating for investors. The coin is now worth a fraction of what it once was, and it doesn’t look like things are going to turn around anytime soon. Only time will tell if Terra can recover from this setback and continue to grow.

Disclaimer: The opinions expressed in the article are for general informational purposes only and are not intended to provide specific financial or investment advice.