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What Really Happened To LUNA Crypto?
Luna is a cryptocurrency token that was launched by the Terra community in July 2019. Some people think that Luna and the Terra Classic USD model won't work in the long run.
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Key takeaways
An estimated $60 billion was lost in the cryptocurrency market after the Luna crypto network crashed.
Stablecoins (Tether, USD Coin) that are backed by dollars or assets held in a bank are not the same as algorithmic stablecoins (UST).
Do Kwon, the company's co-founder and the person responsible for the security of Luna and TerraUSD, is wanted for the theft of these tokens.
Over the course of four years, Terra Network and its leader, Do Kwon, climbed to prominence in the cryptocurrency world, only to fall spectacularly from favor. The global cryptocurrency market was rocked recently when the Luna crypto network saw the greatest crypto meltdown ever, with an estimated $60 billion wiped away.
The Luna cryptocurrency has two backstories: the TerraUSD/UST stablecoin and the Luna coin itself. Total liquidity dried up in the cryptocurrency industry after the crashes of Luna and UST, leading to an even more precipitous decline in value. The cryptography industry is still reeling from the aftermath.
Let's break down what occurred in order to have a better grasp of the situation.
What exactly is Luna Crypto?
There's a good chance you've heard of TerraUSD and Luna; if so, let me quickly explain what they are. The Luna network had a lot of moving parts leading up to its eventual collapse.
Sister currencies on the same network are TerraUSD (commonly known as UST) and Luna.
Similar to Ethereum and Bitcoin, Terra is a blockchain network that generates Luna tokens. In 2018, Terraform Labs' Do Kwon and Daniel Shin launched the network.
The UST token was developed by Terraform Labs to function as an algorithmic stablecoin on the Terra network. The UST would not be backed by physical assets like other stablecoins (such as the USDC or Tether). Instead, UST would rely on the stability of the Luna token to support its worth. To be continued...
As their value is intended to remain relatively constant at roughly 1 USD, stablecoins are seen as a refuge in the cryptocurrency market. The idea is to provide a stable value for investors, making it less risky than other currencies (like ethereum).
Luna was the native coin of the Terra blockchain, analogous to ether on the Ethereum network. In the Terran system, Luna had four distinct purposes:
The means through which one may pay the transaction costs of using the Terra network
The means through which Terra's stablecoin is kept at its fixed value
participating in the Terra network by placing a stake in its delegated proof of stake (DPoS) system.
You may take part in Terra's decision-making by submitting and voting on proposed improvements to the Terra network.
How much was Luna worth?
In April, one Luna coin was worth roughly $116; by the time it was delisted, it was worth less than a cent. Prior to that, the currency made many people instant crypto billionaires after rising in value from less than $1 at the start of 2021. Because of this, Kwon became a hero to (a subset of) ordinary people who invest in cryptocurrencies. The media was flooded with accounts of ordinary people who had become wealthy after investing in Luna.
Prior to its peak in April 2022, the Luna token increased in value by a whopping 135% in little over two months. The biggest perk was the 20% yearly interest you could get by staking your UST holdings on the Anchor lending platform. Many industry experts believed that such a ridiculous growth rate was impossible to maintain.
The Terra blockchain powered the decentralized money market that was known as the Anchor Protocol. Token holders who deposited their USTs on this platform saw a 20% return, which contributed to the platform's rise to prominence. After that, Anchor would reinvest the deposit by lending the money to another client. Many doubters questioned where the funds were coming from to cover such high fees. Some believe it is a clear Ponzi scheme. Since the platform was the key factor in the rise in demand for Terra, as much as 72% of UST was placed there at one time.
What happened to UST?
Stablecoins need to be briefly discussed before we can examine this crypto tragedy. Stablecoins are digital currencies that are linked to a fiat currency, such as the US dollar. Both Tether and USDC are pegged to the US dollar. Stablecoins are a way for cryptocurrency investors to protect themselves against price swings. Say, for argument's sake, that one ether costs $1,000. One ether might be traded for one thousand USDC tokens. Stablecoins are used as a hedge by investors who anticipate a bear market in cryptocurrencies.
Instead of being backed by real US dollars, UST coins were backed by an algorithmic stablecoin. Terraform Labs' billions in Bitcoin reserves and ingenious processes were thought to be enough to keep the UST peg stable without the USD as a safety net.
Luna must be burned in order to produce UST. One Luna token could be purchased for $85 USD at its highest price. The goal of this deflationary technique was to guarantee Luna's continued prosperity over the long run.
The UST was able to maintain its value against the Luna by allowing for a 1:1 exchange rate between the two currencies at all times. If the value of UST dropped, traders may profit by purchasing UST and selling it for Luna at a higher price.
Once UST lost its link to the dollar—what made it a stablecoin in the first place—both Luna and UST plummeted in value.
Because it wasn't backed by cash, treasuries, or other conventional assets like the widely used stablecoin tether, TerraUSD had a higher level of risk than tether. UST's dependability originated from an algorithm that pegged its worth to Luna's. It was doubted by many specialists that an algorithm could maintain the stability of two tokens.
Why did Luna crash?
The Terra network's algorithmic stablecoin, TerraUSD (UST), was the cause of the Luna cryptocurrency's downfall.
Over $2 billion in unstaked (removed from the Anchor Protocol) UST was promptly liquidated on May 7. Arguments have been made on both sides as to whether this was an intentional assault on the Terra blockchain or a reaction to the increased interest rates. U.S. Treasury notes (UST) dropped from $1 to $0.91 due to heavy selling pressure. Therefore, merchants began exchanging $.90 in UST for $1 in Luna.
The stablecoin began to depreciate when a significant quantity of UST was transferred out. There was a surge in the availability of Luna since more individuals sold their UST during the panic.
In the wake of the recent cryptocurrency market crisis, several trading platforms have removed support for Luna/UST pairs. To cut a long story short, nobody cared about Luna anymore since it was useless.
What happened after the Luna crash?
The whole cryptocurrency market felt the effects of the Luna crisis, which occurred at a time when the market was already very volatile and having problems. It is believed that the whole cryptocurrency market lost almost $300 billion in value as a result of the Luna collapse, which led to a plummeting bitcoin price.
Both Voyager and Celsius, two of the industry leaders in crypto, have declared bankruptcy. The financial services firm Three Arrows Capital (3AC) had to go bankrupt.
The Luna crypto meltdown caused severe financial troubles for many individuals, and some people lost everything. Many of these horrific accounts may be found with a simple web search. Dedicated Luna players, or "Lunatics," turned to Reddit to discuss their worst gaming experiences. For example, one retail crypto investor has admitted to losing $20,000 in Luna.
The only people who came out ahead were the ones who got out of the way before the accident. Pantera Capital, a hedge fund, is one success story worth sharing. Their original investment of $1.7 million generated a return of $100 million. Before the market crashed, the business sold its stake in Luna for $171 million.
What happened to the Luna crypto founder?
Do Kwon proposed a recovery strategy for Luna, and for a short while in May after the first disaster, things seemed good. However, the value of the currency quickly declined. Almost immediately, it was dropped. Terra eventually introduced a whole new cryptocurrency called Luna 2.0.
A warrant for Do Kwon's arrest was issued by a South Korean court on September 15. This event occurred nearly four months after the demise of Terraform Labs' Luna and UST tokensoccurred nearly four months after the demise of Terraform Labs' Luna and UST tokens. Do Kwon and five others are presently being held on charges of breaking regional market regulations.
The South Korean authorities want to cancel Kwon's passport since they suspect he is now living in Singapore. If the lawsuit is successful, Kwon will be required to return to South Korea within 14 days of getting the revocation letter. The request has been submitted to the ministry and is being reviewed at this time.
After losing money on Luna, several investors have gone to the local authorities, alleging that Kwon engaged in fraudulent and unlawful fundraising. A total of roughly 280,000 South Koreans are said to have put money into Luna.
How should you be investing?
Consider our Crypto Kit or Emerging Tech Kit if you're interested in diversifying your portfolio into the cryptocurrency market. Both sets are useful for diversifying investment risk away from any one sector, whether that's a single coin or firm or the whole ecosystem. Each week, they employ AI to divvy up their portfolio weights between crypto, tech ETFs, big tech, and little tech. Portfolio protection may help you keep more of what you make and take less of what you lose, regardless of which sector of the economy you invest in.
Conclusion
The danger of losing money is magnified when purchasing digital currency or other assets with a high degree of volatility. For all of Luna's inhabitants, here's hoping this black swan fall is more of an isolated incident than the beginning of the end. The main lesson to be learned is that you should be skeptical of investments that seem too good to be true. Secondarily, even those who remain optimistic about cryptocurrencies over the long term would be wise to allocate no more than 5–10% of their portfolio to this sector.
FAQ
Luna Coin: What Happened to It?
As a result of the Luna crypto network's collapse, the digital currency market was jolted, and almost $60 billion was lost. The Luna cryptocurrency has two backstories: the TerraUSD/UST stablecoin and the Luna coin itself.
To what end did Luna's cryptosystem fail?
The sudden drop in value was due to the collapse of Terra, a so-called stablecoin that was supposed to lessen crypto market volatility by being constant in value.
Should I invest in Luna right now?
When 2022 rolls around, will it be too late to get a LUNA? Among the best-performing cryptocurrencies over the last two years, LUNA has increased by over 76,130 percent from its March 18, 2020, low of 0.12 USD to present day. In addition, LUNA ranked seventh among the top crypto assets by market valuation in March 2022.
Where do you see Luna Crypto going from here?
This is the consensus on what the LUNA coin price will be in 2022 and beyond. The current downward trend in the price of the LUNA cryptocurrency is likely to persist. According to the fear and greed score, investors should be "frightened," since 27 of 28 technical studies point to a downward trend.
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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
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