LUNA price goes to zero and Terra “turns off” cryptocurrency blockchain
LUNA price goes to zero and Terra “turns off” cryptocurrency blockchain
Token has entered a death spiral after stablecoin UST, also native to the Terra ecosystem, lost parity with the dollar
After the TerraUSD (UST) stablecoin lost its backing to the dollar this week, many investors reported not being able to sell Terra (LUNA), the governance and staking token of the eponymous network.
Cryptocurrency holders are those who have LUNA tokens and decided to stake it. These holders are watching the value of their tokens melt and can't do anything about it.
According to Terra Analytics, about 152 million LUNAs are staking on the network — not considering net staking through Lido, where tokens are not so locked. The amount of LUNA staking represents 30% of the token's outstanding supply.
When coins are staking, they are locked indefinitely and the holder receives tokens as a reward. When the holder chooses to withdraw cryptocurrencies from staking, he may receive his tokens after a certain time and no longer receive rewards.
This is usually not a big problem. While the price of cryptocurrencies is volatile, stakers — those who staking — tend to accept timeframes and are used to daily price fluctuations.
If the market starts to decline, concerned holders can withdraw their tokens from staking and withdraw the amount within a few weeks.
Crisis on Infinite Earths
Comic book fans may have identified DC's Crisis on Infinite Earths saga, but they will also realize that the cryptocurrency market isn't much different.
We are talking about the problems involving the Terra Network protocol, which encompasses the Terra cryptocurrency (LUNA) and the TerraUSD stablecoin (UST). Both came into the focus of investors after problems with the code and parity with the dollar of the digital currency.
History of the crisis
To recap: in a matter of a few days, there was a glitch in the protocol of cryptocurrency Terra — linked to the stablecoin TerraUSD — that caused prices to plummet. Some crypto enthusiasts claim that there were no problems and that the blockchain is the victim of a FUD (an acronym for rumor that generates fear and uncertainty in the market).
Be that as it may, LUNA began to plummet and took with it its stablecoin UST, which lost parity with the dollar in recent days. This generated a distrust of the protocol and made the quotations plummet once again.
In numbers: the fall of the Earth
For what became one of the top five cryptocurrency projects in the world, Terra (LUNA) melted 97.45% according to Coin Market Cap and dropped to 96th position.
Since all-time highs at $119, LUNA has lost 99.13% of its value, dropping to $1.03.
The stablecoin UST, on the other hand, is totally destabilized, worth around US$0.393, 70% lower than the parity needed to keep up with the dollar.
"If it was just a small project, there wouldn't be any big problems, but TerraUSD, which has a market capitalization of approximately $16 BI, and is one of the biggest stablecoin projects in the DeFi universe, is the problem," comments Lucas Schoch, CEO of Bitfy.
Earth's End?
“This event is the most important for the crypto market since Covid-19, it exposes a series of flaws in the formation of algorithmic stablecoins and will ignite a debate of the heavier regulation on this class of cryptocurrencies”, comments the CEO of Unblock Capital, Ricardo Assaf.
The United States Treasury Department, Janet Yellen, known for her tough stances against stablecoins, took the opportunity to once again criticize these cryptocurrencies backed by other currencies.
However, this must not be the end of Earth. “LUNA will survive on a much smaller scale, it will have to reorganize itself over time. But it has a technical formulation and the quality of very good developers”, comments Assaf.
And how it affects BTC today
The crisis in the cryptocurrency market started with Earth and spread to other currencies on the market, even affecting bitcoin.
This is because the Luna Foundation Guard, responsible for maintaining the Terra Network, sold the equivalent of US$ 1.5 billion in bitcoins yesterday afternoon (10) to try to ensure UST parity with the dollar, knowing that the protocol also had a reserve in BTC.
THE END (Luna's Death)
Blockchain Terra announced earlier this Thursday afternoon (12) that it has halted its production of new blocks to prevent governance attacks and to reduce the damage from the price drop that has led the native LUNA token to be worth virtually nothing but crunch the value of stablecoin UST, also belonging to the ecosystem.
The announcement was made by UST's official Twitter account. The blockchain was “turned off” at block 7603700.
As of Thursday, the price of the LUNA token had fallen by 99.3% in 24 hours. The downward trajectory is mind-boggling: on May 4 it was worth US$ 87, and now, this Thursday (12) at the time of writing this report, it is quoted at US$ 0.01559025 – virtually nothing.
https://twitter.com/terra_money/status/1524785058296778752
late help
Shortly before the interruption of blockchain production, Terraform Labs, the team responsible for the Terra ecosystem, had presented a plan with three emergency measures that tried to save LUNA from sinking.
However, with a market capitalization of US$106 million, there was little sufficient LUNA liquidity to support the Terra issuance and flare mechanism and to bring the US$7.3 billion market capitalization of the UST back to parity. with the dollar. In this way, the Terraform team was suggesting destroying UST without converting it to LUNA.
The interruption of production, however, leaves a question mark on the viability of these plans and on the very future of the entire Projeto Terra.
no parity
The death spiral, as the path an asset takes to die quickly and relentlessly is called, began when the stablecoin UST lost parity with the dollar.
Behind everything was the system that governed the Earth ecosystem. Every time UST was purchased, an amount of the LUNA token was burned. This made the cryptocurrency rise in price.
So Terraform Labs, which had a huge amount of LUNA, got richer and richer.
With that money, the entity made contributions to the Anchor protocol, another crucial point in the ecosystem.
As analyst Caio Garé showed in a video published a month before the collapse, a large part of the UST volume was allocated in the Anchor protocol, which paid 19% interest per year to whoever kept their resources on the platform – this money would then be borrowed, hence the reward.
Of the nearly $16 billion that the Terra project held in its stablecoin UST at that time, more than $11 billion was inside Anchor.
The problem is that the lending platform had only $2 billion borrowed. The rentiers were paid largely with contributions made by Terraform Labs.
When the UST lost parity with the dollar, it stopped being bought and LUNA tokens began to inflate – that is, to lose value.
the death of the moon
The LUNA token shows similar behavior to shitcoins that lose their value overnight.
In the view of some market experts, this performance makes it increasingly difficult not to nail the definitive death of LUNA.
“LUNA’s promise is over,” trader Daniel Duarte told Bitcoin Portal. “Luna's pricing behavior today is similar to that of a company that goes bankrupt as soon as the market discovers a fraud. just the same. It can now be years, decades, in a range between 1 and 0, or between 10 and 1”.
The thing about Earth's ecosystem, with both LUNA and UST, is that they promised much more than they managed to deliver. “The real thing is that the 20% risk-free promise was to good to be true,” says the trader.
The only chance of any LUNA recovery, in the expert’s opinion – given before the blockchain “shutdown” – is that the project still has some Bitcoin (BTC) reserve in stock “to give some kind of light at the end of the tunnel.” .
However, this can be difficult. Luna Foundation Guard's bitcoin reserve, a Terra ecosystem organization (LUNA) responsible for securing the backing of the UST stablecoin, was completely emptied earlier this week.
