It is no news that the crypto market has been on a downward hill recently, with most cryptocurrencies, including Bitcoin, experiencing a drastic decline in value.
One such cryptocurrency that made headlines was Terra LUNA, which saw a drastic fall in its price by 97%. This move led to investors losing a lot of funds as it set a historic record in the crypto market.
Key Takeaways
• The Terra LUNA crash was caused by wealthy investors carrying out a move known as short-selling.
• Right now, world governments are gaining more ground in seeing to it that all forms of digital currency get strict regulation to prevent such events from ever happening again.
• Despite the loss of funds due to the LUNA crash, investors have not lost faith in cryptocurrency as they are still willing to go further once the market recovers.
• At the moment, LUNA’s market price has consistently been facing a downward spiral, with a lot of investors curious as to whether LUNA will ever bounce back.
This article explains in detail the Terra LUNA crash, the reason behind it, and what it means for the future of crypto moving forward.
The concept of Terra LUNA and the reason for its crash
LUNA was launched in 2019 and is the native cryptocurrency of the Terra ecosystem. With it is the UST, which is an algorithmic stablecoin created by Terra and pegged to one USD through a burn mechanism.
Before the events of the crash, LUNA was doing quite well with it even reaching a price high of $120 in value before it plummeted to just below $0.12 setting a chain of events in the process.
In the event of this, crypto analysts and investigators have wondered why exactly this event unfolded.
After much deliberation, it was agreed that Terra LUNA crashed because of the Anchor Platform and the UST.
Back then, investors saw an opportunity to profit from Anchor, which was a borrowing and lending platform.
Hence, what they did was rapidly purchase UST and then lend it to the Anchor platform, receiving a 20% yield in return.
Initially, crypto analysts did not believe that Terra could offer such a high amount in return and suggested that investors were implementing a Ponzi scheme, which could be detrimental to the crypto market.
This was even confirmed by the creators of Terra, who then suggested that investors need not worry too much, as the high returns were often implemented by new entrants when trying to penetrate the market.
Eventually, this took a turn for the worse, when crypto whales decided to borrow huge amounts of bitcoin to buy UST to make huge profits when the value of UST fell, otherwise known as short-selling.
This move caused the UST to depeg from the USD, which in turn caused a lot of investors to pull out their funds, especially those who had benefited from the Anchor platform.
The resultant effect was a crash in the value of LUNA, which was referred to as a death spiral that saw its market price plummet to fractions of a penny after being worth $112 just before the event unfolded.
What does the crash mean for the future of crypto?
Frankly speaking, a lot of events as regards crypto could unfold in the future as a result of the LUNA crash. Here they are below:
Strict regulations could be enforced
Even before the event of the LUNA crash, world governments have been clamoring for crypto regulation because of its price unpredictability.
With the LUNA crash, these reasons would even be more justified, and the need for regulations would become much stronger than ever.
Due to the loss of funds and ruin that the LUNA crash has left in its wake, experts are looking at opening the crypto market for proper regulation to prevent this event from happening in the future.
The creation of more algorithmic Stablecoins may be halted
The UST is an algorithmic stablecoin and, for some time now, it has been an inspiration for a lot of crypto developers out there who wish to create more algorithmic stablecoins with even more decentralization.
With the unfolding event, developers might be forced to rethink this in the future.
Even now, other algorithmic stablecoins such as Frax and Magic Internet Money (MIM) have witnessed a drop in their market prices, proving that investors are starting to become highly skeptical about these types of coins.
Venture Capitals may slow down their investments in crypto
The crypto market has seen considerable investments in crypto from venture capitalists over time.
But with the event of the LUNA crash, such huge investments may no longer be possible because of the fear of doubt or mistrust on the parts of these investors.
The concept of decentralized finance may no longer be so appealing
One of the major strong points of cryptocurrency is the fact that it is highly decentralized, assuring investors complete freedom when it comes to their crypto assets.
Right now, the LUNA saga proves that even the concept of decentralization is not without its weaknesses, although this is something that can be improved upon with more public awareness.
How is Terra LUNA performing at the moment?
Source: CoinMarketCap
According to CoinMarketCap, Terra LUNA has transitioned to Terra Classic with a market price of $0.0000571 at the time of writing.
According to the price chart, the price has constantly been facing a downward spiral. However, this is to be expected due to the de-pegging of the UST and the Terra blockchain being halted.
Frequently Asked Questions (FAQs)
Are Terra and LUNA the same?
No, they are quite different. Terra is a blockchain network, whereas LUNA is the native cryptocurrency of the Terra blockchain.
How much is LUNA worth right now?
At the time of writing, LUNA is worth $0.0000571 as seen on CoinMarketCap.
Final Thoughts
The Terra LUNA event has seen investors lose a lot of funds in the process and, to some, may have ruined a lot of lives.
However, this has not reduced the faith people have in crypto, with more people willing to count their losses while still waiting for the crypto market to recover.
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