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The stablecoin TerraUSD (UST), a coin that operates with Luna has emerged as one of the world's most notable coins with a market capitalization of $20 billion, plunged day after day. Several media outlets point out that this is the limitation of cryptocurrency, comparing it to the 2008 financial crisis.
According to CoinMarketCap, a global coin market data site on the 13th, Luna's price plunged 99.38% from 24 hours ago to $0.00007071. Just the day before, 1 Luna was $19 and $87 on the 5th, but it plunged nearly 99% in a week.
LUNA and TERRA
Luna and Terra is a cryptocurrency issued by Terra Form Labs, a blockchain company founded by 30-year-old CEO Kwon Do-hyung, a former Apple engineer. Terraform Labs headquarters is located in Singapore.
Terra is a stablecoin designed to be 1 for 1 pegged to the dollar.
And Luna is a coin that was developed to support the value of Terra, which is used in Defi.
In other words, when the price of Terra falls, it uses an algorithm to control the supply of Luna demand so that Terra's price is fixed at $1. UST Terra once ranked third in stablecoins, with a market capitalization of $18 billion.
However, Luna has also been falling endlessly with the recent UST falling below $1 (Depegging, the failure to maintain the value of the UST. There are many different analysis’ about Luna's downfall, but the most common interpretation has to do with the loophole in the algorithm.
The Luna system is designed to maintain Terra prices. When demand for Tera increases and prices rise, Luna is burned to stabilize prices.
Conversely, if the Tera price falls below a dollar, the system incinerates Tera and issues more Luna. It's to reduce the amount of terra in circulation to maintain a dollar, which, to put it simply, is similar to the U.S. printing and collecting dollars to maintain the value of the currency.
The problem occurred when both Terra and Luna prices fell. As Bitcoin prices fell due to the recent global interest rate hike, Luna prices also fell as investors sold Terra.
If Terra consumers want to be guaranteed a dollar, they have to get Luna and sell it, but the price of Luna has also fallen, resulting in a "bank run" (large withdrawal) to quickly receive and sell Luna before further damage occurs.
As a result, when the price of Terra fell, the price of Luna fell, and when Luna fell, the vicious cycle of Terra falling was repeated.
In fact, there have been concerns about the Luna system, and there have been opinions that it was like a time bomb that would one day explode.
The high-interest policy, which provides an annual interest rate of 20%, increased demand but eventually became toxic.
Despite the situation, some investors who have staking Luna have no choice but to open their eyes and look at it.
Staking means depositing the cryptocurrency in the blockchain network and receiving it as a reward through it, and when staking, it takes a certain period of time to release the deposited cryptocurrency. It takes Luna three weeks to unstake it.
After the depegging event the price fell 99% within 3 days and due to the long unstaking periods, many investors were left losing all their investments.
This Luna shock has had a big impact on the cryptocurrency market and continues to this day.
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