Terra (LUNA): Everything you need to know
Is the financial crash happening again, but for the world of crypto?
It’s been a rough week for the crypto market, especially for the once-king of algorithmic stablecoin, Terra Luna. With a crash of 99 percent in just a few days, Terra Luna has shaken up the entire crypto market, affecting big players such as Bitcoin and Tether. Binance Investment was once valued at $1.6 billion, but as of now, (May 18) its worth has plummeted to around $3,000. Terra Luna is now close to being worthless, dragging Bitcoin and others down with it. Just last week alone, bitcoin saw a drop of 25 percent in value. All these factors are making crypto traders in the crypto market question whether this is the crypto equivalent of the 2008 financial crash, the moments leading up to the big collapse. Some have been left devastated, crushed to the point where their mental state is at risk.
What are Terra Luna and TerraUSD, and why should I care?
Some stablecoins (like tether) are backed by assets that others like TerraUSD rely on complex algorithms to maintain their peg to the US dollar. This means while 1 TerraUSD is attached to and worth the same amount as $1, Terra Luna’s worth can fluctuate.
Think of it as a seesaw. You can burn/destroy one TerraUSD in order to mint/make Terra Luna and vice versa. One of the reasons why everyone got on the TerraUSD and Terra Luna train was because of something called Anchor Protocol. It is basically a savings account for your TerraUSD with a high interest that could reach some 20 percent.
In the last few weeks, crypto traders and businesses began trading their terra assets for stablecoins, causing the supply of Terra Luna to exceed and its value to decrease, and that is the story of how we got here.
Terra Luna 2.0
Do Kwon, the co-founder, and CEO of Terra Labs, has come up with a proposal on how to revive the terra ecosystem from its current state.
“I understand the last 72 hours have been extremely tough on all of you — know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this,” he wrote on Twitter.
He wants to reconstitute the terra blockchain and reset the total supply of tokens to 1 billion. The old version will be called Terra Classic Blockchain (LUNC), and the new one — without a UST arrangement — will be called Terra Blockchain (LUNA). All in all, Terra’s ultimate goal is to be a community-owned crypto Blockchain, which is similar to a decentralized autonomous organization (DAO).
The butterfly effect
The fall of Terra Luna proved devastating to many people. Many have lost their life savings, and some have even contemplated ending their own lives because of the drastic losses they suffered.
Not only are investors at a loss at what to do here, but the crash could also potentially change the traditional financial system in the long run. In the near future, it’s likely that crypto companies may grow larger and integrate themselves with other companies, later even becoming platforms for real economic activity.
People watching the whole affair unfold have called for more regulations. As US Secretary of the Treasury Janet L. Yellen testified before the Senate Banking Committee on May 10, she stated how the situation “Simply illustrates that this is a rapidly growing product and there are risks to financial stability. We need a framework that’s appropriate,”, and encouraged Democrats and Republicans to work together on finding a resolution.
