Terra Luna: What is Next?
Concerns raised when LUNA and UST crash into other coins.
Because of the massive amount of Avalanche (AVAX) anticipated to be spent on the compensation procedure, the collapse of the Terra (LUNA) ecosystem is raising anxiety among layer one altcoin projects. The implications of the crash on other markets are discussed in this article.
The failure of Terra (LUNA) provokes concern among comparable initiatives. Because of the crypto crashes, many investors are wary about cryptocurrencies. On the other hand, some investors have amassed enormous wealth in a short period of time.
The failure of Terra causes investors to lose faith in other level one Blockchain projects. Projects with valuations equal to Terra, on the other hand, floundered in depression as a result of the collapse. Given the market's ongoing decline, altcoin investors are likely to be concerned about a similar collapse in other L-1s.
Panic selling is when a large number of people sell an investment at once, causing prices to plummet. A huge crypto market drop in the last two weeks coincided with much of the panic selling. The overall value locked inside the DeFi domain for L-1 protocols has dropped dramatically (TVL).
Terra's demise has ramifications for other first-layer blockchains.
L-1 Blockchains, excluding Bitcoin, were the worst performers in the first two weeks of May, according to statistics from blockchain research firm Kaiko. The start of this pattern coincided with Terra's fall. They've dropped 43% on average in the last two weeks, outperforming layer 2 blockchains and Bitcoin. In contrast, Bitcoin has lost almost 22% of its value.
According to Kaiko statistics, Avalanche (AVAX) and Phantom (FTM) were the worst performers in May, losing about 40%. Users were able to earn via DeFi pools and staking. The Avalanche will most certainly be under attack for some time due to their close ties to Terra. The Luna Foundation Guard has AVAX worth $66 million to sell.
The market's collapse is also concerning.
The underlying causes of the crashes have not changed. The Bitcoin market was strongly positioned throughout May, anticipating rising inflation forecasts and more Federal Reserve interest rate hikes.
The majority of the crypto losses occurred when the Fed raised interest rates in May. Another wave of selling pressure developed as statistics revealed that US inflation will take substantially longer to drop. The cryptocurrency market lost roughly $400 billion in May.
