Crypto

Luna: TerraUSD stablecoin collapsed to $0, traders lost millions

The stablecoin TerraUSD fell below the $1 mark, causing its dual cryptocurrency Luna to collapse and be worth next to nothing. Many investors have lost all their money and some are said to have died. A catastrophe that reminds of the dangers of crypto trading…

In the vast ecosystem of cryptocurrencies, various tokens offer certain characteristics to thrive and attract traders. Thus, “stablecoins” are theoretically stable currencies that should allow investors to protect their assets from the high volatility of cryptocurrencies such as Bitcoin or Ethereum.

What is TerraUSD and Luna?

TerraUSD, also known as UST, is an algorithmic stablecoin that uses computer code to keep its price near $1 through a complex minting and burning system.

Simply put, the way it works is that the UST token is created by destroying a sister cryptocurrency: Luna. This is what should bring the value of TerraUSD into line with the value of the US dollar.

At any time, traders can exchange 1 LUNA dollar for 1 UST and vice versa. Every time a Luna is exchanged for UST, that Luna is also destroyed and removed from circulation.

Unlike other stablecoins like Tether or USD Coin, UST is not backed by a real asset. Instead, the non-profit organization Luna Foundation Guard, created by Terra founder Do Kwon, holds 3.5 billion bitcoins in reserve.

So far this system has worked very well. Terra has remained very stable and traders have used it to store their profits safely.

TerraUSD falls below $1, traders sell their entire moon

Unfortunately, the cryptocurrency market has reached unprecedented volatility in the past week. STU’s stability was tested… and failed.

TerraUSD fell below the $1 mark. Immediately, investors panicked and rushed to get rid of their Luna tokens.

The exchange mechanism between Luna and Terra was under tremendous pressure. The Luna token took a massive hit as investors tried to flee the UST.

As a result, Luna’s price dropped from $85 to around 4 cents in a week, according to Coin Metrics data. This cryptocurrency no longer has almost no value. The market capitalization has grown from $40 billion to $500 million.

As of May 13, 2022, TerraUSD is worth just $0.165, according to CoinMarketCap. Meanwhile, LUNA only costs $0.00003706…

Binance delisting LUNA and UST

Binance Exchange stated on May 12, 2022 that the Terra Network, the blockchain associated with the Luna token, is “experiencing slowdown and congestion”, resulting in “a large volume of pending withdrawal transactions from the Terra Network.” This phenomenon demonstrates how investors are rushing to resell their Moon. Binance suspended Luna withdrawals for a few hours due to congestion before resuming them.

Shortly thereafter, Binance threatened to delist Luna and USDT if Luna’s price fell below 0.005 Tether (half a penny). Finally, on May 13, 2022, Binance announced the removal of LUNA and UST from its exchange. All tokens from the Terra ecosystem have been removed.

Terraform Closes Luna and UST Blockchain

On May 13, 2022, in less than a day, the blockchain on which TerraUSD and the Luna token are based stopped processing new transactions twice.

On Twitter, Terraform Labs explains that the entities responsible for verifying transactions on the blockchain are working on a “plan to recreate” the Terra network.

The community is exploring several options for ecosystem restoration. One path being considered would be to restore the Terra blockchain to the state it was in before the TerraUSD crash. The goal is to repair the damage caused by the event.

Another suggestion is to “fully back” TerraUSD and implement new balancing mechanisms with Luna. Details have not yet been specified.

Another proposal would be to end Terraform Labs’ control over the Terra ecosystem. The goal is to preserve the remaining ecosystem and community value and restore everything. At this point, representatives from Terraform Labs and the Luna Foundation Guard have yet to comment.

The fall of TerraUSD and Luna leads to the collapse of the crypto market

The controversy with TerraUSD had repercussions for the entire cryptocurrency market. For good reason, the Luna Foundation Guard keeps a huge amount of bitcoins as a reserve. However, traders fear that the organization will have to sell their bitcoin shares in order to maintain the value of their cryptocurrency.

In one week, Bitcoin lost 29% in price and eventually fell below the $26,000 mark, its lowest level since the end of December 2020. Similarly, Tether, the world’s largest stablecoin, fell below the $26,000 mark. market panic.

Billions of dollars just evaporated. In addition to the UST scandal, the cryptocurrency market has been heavily affected by other phenomena such as inflation and rising interest rates, which caused the global stock market to fall. Indeed, these two markets are interconnected.

In general, the situation with Luna/UST has seriously affected investor confidence. Most cryptocurrencies have lost over 50% of their value. The future for the crypto market is suddenly looking a lot less rosy…

Terra Builder Alliance wants to change how TerraUSD works

The Terra Builder Alliance is committed to finding a solution to save the Terra ecosystem. His proposal is to permanently end the use of UST as an algorithmic stablecoin.

Once all UST is exchanged for LUNA, the stablecoin will cease to exist in its current form. Instead, the group proposes to create a secured stablecoin. However, we don’t know how this will work.

According to a document released by the group, “the stability mechanism does not appear to be on track to restore alignment with the dollar in the short term.” In addition, “when UST is replaced by Luna at the launch of the new network, it will cease to exist in its current form and will be restarted in a secured form.”

Luna merchants lost everything

Many crypto traders lost everything after the collapse of UST and LUNA. British YouTuber KSI has reported that he lost $2.8 million invested in Luna.

Despite this heavy loss, the videographer and rapper wanted to value his 40 million subscribers: “I invested 2.8 million in LUNA and it’s worth less than 50k. But that’s okay, because I didn’t die. I have my family, my friends and my strong work ethic haha.”

Unfortunately, not all investors have such stability. According to some internet users, there have been 8 confirmed suicides since this crisis.

On Reddit u/TerraLuna, the pinned post now contains a series of links leading to SOS Suicide lines from all over the world. Many traders talk about their heavy losses.

User No-Forever2056 explains that he considered selling all of his Luna shares when they were worth $100 between March and early April. However, he chose to keep his low profile to see if he could earn enough to afford a house. He lost $17,000 in the crash.

Another user claims to have lost over $450,000. He can no longer pay the bank and is afraid of losing his house very soon. Similarly, a forum member said he had lost all his savings and “didn’t know what to do”.

It is more important than ever to remember that investing in cryptocurrencies comes with serious risks. The collapse of the Terra ecosystem demonstrates how dangerous trading can be. Be careful !

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