Terra (LUNA) collapsed by 90% in 24 hours: a cataclysm in the cryptocurrency market

Terra Luna the horror continues – Several days protocol Terra Luna enters a downward spiral. So ecosystem-specific stablecoin UST lost its dollar standard, pulling the LUNA token with it. Unfortunately, the UST is struggling to recover its $1 value by getting bogged down in the protocol and its investors every day.

Tera Luna in Turmoil: Infernal Spiral UST

in TerraUSD (STU) it is an ecosystem-specific stablecoin Terra Luna. Unlike centralized stablecoins like USDT, this one does not depend on a stock of hard-hitting dollars, but on a basket of underlying crypto assets.

Therefore, this subject to the vagaries of changes in these underlying assets. Faced with the recent general downturn in the cryptocurrency market, UST has gradually moved away from its dollar benchmark of 1 UST = $1.

On the afternoon of May 9, STU moved a little away from his stallion, drops to $0.94. So far, nothing particularly alarming, this situation is well known to algorithmic stablecoins.

However, on May 10, the situation did not improve. Indeed, UST hit a low of $0.74 before climbing back up to around $0.9. A breath of fresh air for Anchor users that was unfortunately short-lived.

Since the beginning of the day, the price of UST has fallen to only bottom at $0.22 on Binance. Value that rose slightly: At the time of writing, UST was trading around $0.33.

UST price dynamics – Source: Coingecko.

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LUNA sucked into UST’s fall

As if the situation wasn’t dire enough UST stole LUNA token specifically for the Terra Luna blockchain.

Thus, the token, which hovered around $60 over the weekend, fixed fall 92% and is currently trading at $4.73.

As a reminder, the LUNA token hit its ATH at $119 just over a month ago on April 5th. This represents a 96% drop in just 1 month.

LUNA Price Evolution
LUNA price evolution – Source: Coingecko.

This drop can be attributed to several factors. At first, many users probably sold their LUNA tokens after witnessing the UST fiasco. Secondly, downward pressure could create the existing conversion mechanism between UST and Luna. Thus, it is possible to burn 1 dollar LUNA to create 1 dollar UST. You can also return it backredeem) $1 from UST to get $1 from Luna.

This process was actively used in arbitrage, which exacerbated the situation for the LUNA token.

Desperate attempts to protect the Luna Foundation

Luna Foundation Guard (LFG)is a non-profit organization whose mission is to support the evolution of the Terra Luna ecosystem.

Faced with the descent into hell, the latter did not sit idly by. So this has liquidated (at a loss) over 42,000 BTC just purchased try to stop the bleeding on the night of May 9-10. However, this was not enough, despite the billion dollars invested in the system.

Obviously, LFG hasn’t said its last word. So, according to information released yesterday by our colleagues from TheBlock, the security of the Luna Foundation is currently trying to raise almost $1 billion more to stem the UST’s fall.

Also, according to the same source, in exchange for a billion dollars, LFG will allow investors to buy LUNA tokens at a reduced price, namely 50% below the market price. However, these tokens will have a 2-year lockup period to ensure that they are not resold directly, further pushing the price down.

Golden offer?

But is this offer really interesting? Indeed, LFG offers investors to buy back LUNA tokens at a 50% discount, while in a few days the asset has lost more than 90% of its value.

In addition, the words of some Terra Luna Discord moderators do not inspire confidence. So we can read there:

Posted by a moderator on Discord.
Posted by a moderator on Discord.

“There is no death spiral, because to bring the ESN back to the dollar level, you need to create a moon (which reduces the cost of the moon by increasing the supply) – if necessary, you can create a trillion moons, or 10 trillion, or 1000 trillion, whatever. Luna price will be close to zero, but UST will reach parity no matter what.”

Or :

“If you hold LUNA (possibly staking), you will almost lose everything. If you hold UST, you will have dollars when parity returns.”

Various versions

So, on the one hand, LFG is trying to negotiate $1 billion for the “opportunity” to buy LUNA at a discount. On the other hand, Discord moderators explain in black and white that LUNA will be printed to restore the standard if necessary. Even if it means resetting the price of LUNA.

Of course, it should still be noted that the Discord moderator’s statements are in no way official decisions. However, the situation is still puzzling.

Meanwhile, the entire ecosystem held its breath. Last night, Do Kwon, co-founder of Luna, stated that the UST recovery plan would be announced soon. This may very well be the last hope for the Terra Luna ecosystem… if the loss of the dollar peg is not too catastrophic, of course.

Do Kwon's tweet.
Twitter Do Kwon Source: Twitter

The panic is not limited to the cryptocurrency markets. As a result, the stock market has also recorded a significant drop in recent days.

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