Mostafa Gorji, a cryptocurrency aficionado, watched with shock as the market crashed on his screens in the second week of May. Cryptocurrency prices had already been trending lower in general, along with the broader economic unrest that had begun in the last weeks of 2021. But when they declined, they had a breakdown that some traders compared to the start of the global financial crisis in late 2007. Many people, according to the COO, are reevaluating their predictions of a bright future. The future in which cryptocurrencies replace traditional money and break the monopoly of banks as a result of the collapse of multiple fiat currencies. The Terra Luna crash, which was a major factor in one of the worst economic catastrophes, has resulted in numerous losses for investors. Luna’s valuation fell from $20 billion to almost nothing in a matter of days. The following leading coins of the market were also impacted: Ethereum, the second-largest cryptocurrency, plunged 23% in five days, while bitcoin dropped 17% in the same time frame.
Why did Luna crash?
Mostafa explains, markets sometimes experience a 30% drop. simply testing their supports again. But why did Luna drop so much? The price of the $1-pegged algorithmic stablecoin terraUSD (UST), which was valued at 18 billion dollars at the time, began to fluctuate on May 7 and dropped to 35 cents on May 9. As a result, By May 12, its partner token, LUNA, which was intended to keep the price of UST stable, dropped from $80 to a few cents.”
“Terra’s valuation followed suit with Luna’s fall from nearly $80 at the beginning of the month to a fraction of a cent.”
According to Gorji, “The Terra Luna crash caused the market to become unstable”, and in this catastrophe Retail traders have been impacted the most. This incident left the entire industry in shock and even the most vigilant eyes were not anticipating one of the top 10 crypto projects to go to nothing in just a matter of a few days.
What is the key takeaway of Luna crypto crash?
As explained by Gorji, a $60 billion worth of digital currency was lost in the Luna collapse. This incident demonstrated that algorithmic stablecoins are not as reliable as asset-backed stablecoins, such as Tether or USD Coin (USDC).
How did Terra Luna crash?
Mostafa Gorji explained the primary reason behind Terra Luna crash is the inherent flaw associated with algorithmic stablecoin systems that run on autonomous decentralized platforms.
About $2 billion worth of UST was unstaked from the Anchor Protocol prior to the LUNA disaster, and hundreds of millions of it were subsequently sold.
The COO said, “although the precise motivation for this crime is still unknown, some speculate that it may have been part of an intentional assault on the Terra ecosystem.
Stablecoins undoubtedly are one of the main pillars of the crypto sector. Since the debut of the first stablecoin Tether in 2014, constantly there have been concerns in the crypto community about Tether and other stablecoins losing peg from fiat money. The most well-known stablecoin, Tether, is allegedly backed by dollars’ worth of cash on hand along with other kinds of fixed income securities, according to an audit of Tether. Decentralized algorithmic stablecoins, on the other hand, work to control market prices by preprogramming supply to match asset demand.
Mostafa further explains that, “the entire crypto market was in the midst of a severe downturn. The market capitalization of LUNA dropped below UST at this time. As a result, the UST became de-pegged because its entire value could not be exchanged for LUNA”. All of this transpired in such a brief period of time that the algorithm that kept the price of the stablecoin at $1 failed to continue to do so.
On September 15, the public learned that a South Korean court had issued an arrest warrant for Do Kwon, the creator of Terra. Do Kwon and five other people are currently charged with breaking local market regulations.
What is Luna crypto exactly?
Luna has four separate roles in the Terra network:
1. A means of covering the transaction costs of the Terra network.
2. A mechanism for safeguarding Terra’s stablecoin peg.
3. Terra uses Delegated Proof of Stake (DPoS) staking to validate network transactions. 4. Voting and submitting to proposals for Terra network improvements as part of platform governance
In 2018, Daniel Shin and Do Kown introduced Terra, a platform powered by Terraform Labs, a South Korean business.
Concluding Thoughts
Gorji concludes that algorithmic stablecoins use a relatively new method to tie their value to fiat money and apparently they have failed to endure the test of time because we have not observed their effectiveness in the face of significant market stress.
Even though LUNA is now not a smart investment, investors should still do their research and determine the best course of action. If you wish to invest in Luna or simply buy bitcoin in the UAE, you can trade with Crypto Desk, a company that Mostafa Gorji co-founded.
FAQs
What is Luna Crash’s Impact On Crypto Market?
We should anticipate additional setbacks on the worldwide market because this incident badly damaged the investor’s confidence in cryptocurrencies.
Is Luna Decentralized?
A network of decentralized stablecoins was supported by the Terra blockchain technology. Its currency, LUNA, also functions as a decentralized reserve.
History of Terra (LUNA)
Do Kwon and Daniel Shin started Terra in 2018, and the company debuted its mainnet the following year. Kwon and Shin created Terra to give consumers the security of fiat money while utilizing blockchain technology to make settlements quicker and less expensive than with conventional payment methods.
How to Buy Terra (LUNA)
Terra Luna is now only available on a relatively small number of exchanges, including Crypto Desk a crypto exchange in Dubai, that allows users to trade Luna and more than 500 other crypto currencies. If you want to invest in Luna or just buy bitcoin in the UAE you can use Crypto Desk services. At Crypto Desk, you can buy USDT with cash as well.
