Terra Luna has crashed to about 98% in recent events. The Coin's market capitalization has dropped from $4 billion to $2 billion, and the market price has fallen to under $1 in the last twenty-four hours.
This crash has brought about a lot of backlash from the Terra LUNA community.
In this article, we will be giving insights into everything about the crash.
What is the Terra LUNA and UST Crash all about?
In the early hours of Wednesday, the value of LUNA plummeted as Terraform Labs founder Do Kwon announced a plan to salvage its sister token, the stablecoin TerraUSD (UST).
LUNA has lost around $10 billion in the last 24 hours. Its price has dropped 98 percent, from $32 to below $1 a coin, with the fluctuating price minute by minute. UST has risen more than a quarter to 64 cents a coin after plunging to 30 cents.
On Wednesday, Kwon proposed destroying a "billion in UST" while "substantially" diluting LUNA's price on Twitter.
The move comes after UST and LUNA have lost tens of billions of dollars in value in the last week and as investors and analysts struggle to figure out the potential extinction of both coins means for the crypto market.
According to Kwon's tweets, the recovery proposal — which appears to be on the verge of being approved by the Terra community — would allow investors to trade UST for LUNA, significantly increasing LUNA's price pressure to bring UST back to its $1 peg.
Recognizing the implications for investors, Kwon stated, "we will continue to investigate various strategies to bring in additional external money to the ecosystem" and change UST's peg mechanism "to be collateralized."
Most stablecoins tie their value to another asset, most commonly the US dollar, to stay as feasible to that asset's value. The purpose is to provide pricing stability for commercial payments and a safe harbor for investors.
On the other hand, UST is an algorithmic stablecoin that relies on market dynamics to manage the asset peg by tying UST to its sister coin, LUNA. However, the method appears to have increased the stablecoin's volatility.
At presstime, UST is trading at over 64 cents per coin, down 30% in the last day after breaking its critical $1 peg over the weekend, while Terra's LUNA token is up 61 percent to $1.15 after dipping to $0.45 at 9 a.m. New York time Wednesday.
Treasury Secretary Janet Yellen described UST as a "run" during a Senate Banking Committee meeting Wednesday, highlighting why the US needs to implement stablecoin regulation now more than ever.
"I think that simply highlights that this is a rapidly developing product with financial stability risks, and we need an appropriate structure," Yellen said.
"We're witnessing $18 billion in wealth go before our eyes, and people are losing money," Todd Phillips, head of financial regulation and corporate governance at the Center for American Progress, added.
Though many observers blame the stablecoin's design and capacity for weathering turbulent markets, Teng also mentioned another "trigger" for the stablecoin "de-peg" last weekend.
It was gathered that many investors who bought $LUNA at a very low price regretted that they didn't sell off when it was at its all-time high due to assumptions that it would go higher.
A member of a LUNA reddit forum had this to say--“I lost over $450,000, I cannot pay the bank,” Another user member of the Terra forum wrote.“I will lose my home soon. I’ll become homeless. Suicide is the only way out for me.”
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With the crypto market being in the bearish season, investors are wary of market manipulations and would try to save their money by pulling out unprofitable projects. Algorithmic stablecoins are in their early stages; this run with UST and LUNA seems like an experiment and people were able to exploit its weaknesses; the creators of LUNA would need to dig deep to save the project.