Terra (LUNA) — Going to $0, from a $119.18 high
On Thursday (May 12), LUNA , which is the native staking and governance token of Terra protocol, is trading below $1, which is a huge fall from the all-time high of $119.18, which was set just over five weeks ago.
What is Terra?
Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems. According to its white paper, Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC) and offers fast and affordable settlements.
Development on Terra began in January 2018, and its mainnet officially launched in April 2019. As of September 2021, it offers stablecoins pegged to the U.S. dollar, South Korean won, Mongolian tugrik and the International Monetary Fund’s Special Drawing Rights basket of currencies — and it intends to roll out additional options.
Terra’s native token, LUNA, is used to stabilize the price of the protocol’s stablecoins. LUNA holders are also able to submit and vote on governance proposals, giving it the functionality of a governance token.
LUNA’s role for UST
UST is what’s known as an “algorithmic” stablecoin. The LUNA token and UST are mutually dependent, as the success of the Terra ecosystem is a function of the adoption of UST as a stablecoin. LUNA backs UST and is burned when demand for UST rises. Following upgrades like Columbus-5, the supply of LUNA could become highly deflationary in the long run.
On the flip side, the value of LUNA can also decrease if UST is perceived as unstable. UST briefly lost its peg following the Wormhole hack, leading to a temporary price crash for LUNA.trade LUNA with the MEXC.
Why did UST lost its dollar peg?
On Monday (May 9), Jonathan Wu, who works at Aztec Network, posted an excellent thread on $UST’s de-peggging from the dollar:
And on Tuesday (May 10), popular pseudonymous crypto analyst “Onchain Wizard” posted a great thread on his theory of how $UST was attacked:
When people invest in something they do not understand or research into especially something that has an exploit in its design this would happen sooner or later. The difference being unlike tradfi crypto does not have the Fed to bail them out in case of such crashes. However, this crash also shows that the crypto market is resilient if anything else. BTC and ETH lost something like 20-30% in this crash which is quite tame compared to the general moves of 50%+.
We learn and move on. I've also been burnt in crypto. It's truly the wild west out there. That's not to say that there are some exciting companies out there utilising blockchain technology to do things better than TradFi. However a lot of these ambitious crypto companies with promising you the world are high risk af. It feels like the dotcom bubble again, except x10 because we have the internet now.
when i last actively followed crypto maybe in 2017/18 there was only Tether as a stablecoin. are there loads now?
Enim nesciunt iste aut repudiandae. Non veritatis reiciendis iusto eos. Velit ut rerum perferendis. Sequi non ab vero ipsam tempora quae.
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