After dominating the top 10 list of cryptocurrencies for an entire year, Terra (LUNA) eventually dropped from its position of prominence. The cryptocurrency is currently ranked 74th, and it is possible that it will fall out of the top 100 very soon. There are rumours going around social media that LUNA might be on its way to reaching $0.
These rumours are making the rounds. Nevertheless, during the fall we will have to wait and see if the scenario actually comes to pass or if it is merely a set of hypotheses. As a sign of how keen investors are to learn what’s going on, the number of people searching Google for “why is Terra falling” has skyrocketed.
PART ONE: A Mysterious Whale Drops Off Some TerraUST
The crash occurred as a result of a single unidentified and nameless whale that dumped $285 million worth of UST on the open market. Between the 7th and 8th of May, 2022, the whale released the gigantic holdings into the ocean. The sheer magnitude of the dump causes UST to become unbalanced relative to its 1:1 peg to USD. After the withdrawal, UST moved to $0.98, which opened the floodgates for a freefall after that point. One very major player was responsible for the massive dump that was done on the Curve and Binance app, which ultimately led to the token going off the tracks.
Caetano Manfrini, a legal officer at GEMMA, a cryptocurrency startup based in Brazil, stated that there was a “huge $285 million UST dump on Curve and Binance by a single individual,” which was then followed by “large shorts on Luna.”
PART — 2: The Market Reacted in a Manner That Corresponded With the Dump
As soon as UST was unpegged, a great number of large players engaged in enormous short trades, which sent the token into a downward spiral. From this vantage point, there was no escape to a secure location, and the building’s destruction appeared to have been “written on the walls.” Everyone was aware that it would rapidly decline, therefore they abstained from investing in it in order to safeguard their money.
Terra maintains a safety holding for its LUNA tokens in light of the fact that the UST is tied to the USD. As a consequence of this, investors were encouraged by the Terra protocol to mint UST and destroy LUNA anytime the price of UST surpassed $1. The same thing happened in reverse when UST dipped below $1 in an effort to maintain equilibrium and steadiness. As a result of the UST-USD exchange rate no longer being tied to the USD, the balance has plummeted to $0.40.
PART 3: The Harm Has Been Done, and Trust Has Been Shattered
The current price of Terra on the market is $0.15, which is a decrease of 98 percent in the past 24 hours. Investors no longer have faith in the idea and are beginning to wonder about the experience that Do Kwon, the initiative’s originator, has in the financial sector. Former employees of Terra have claimed that Do Kown was the mastermind of an earlier failed stablecoin called Basis Cash.
The UST fell to $0.45 when Do Kwon was presenting his “recovery plan.”
As a result of LUNA’s significant loss, fear began to spread throughout the market. In just 24 hours, the price of the alternative cryptocurrency fell from $34.38 to a low of $2. As it fell to $0.50, the third-largest stablecoin known as TerraUSD (UST) revealed that it was not as stable as it had been previously thought. Do Kwon, the chief executive officer of Terraform Labs, was more motivated as a result of this to fix the problem and provide some relief to the community. Kwon made the announcement about the “rehabilitation plan” last night. As Kwon remained silent for several hours while Terra’s native assets were on the verge of being destroyed, the community’s patience began to wear thin.
Through a series of tweets, Kwon was eventually able to break his quiet. Kwon was ready to unveil his rescue plan, and he started by acknowledging the fact that the past three days had been “very difficult.” Kwon went on to explain the rationale behind the precipitous decline in the price of LUNA.
The capital that was itching to get out of UST had been the driving force behind a significant LUNA sell-off. The decline of LUNA was hastened even further as a result of this.
Kwon disclosed, over the course of a community proposal presentation, that the one and only option to move forward was to increase the quantity of LUNA that was being minted on a daily basis. He added,
“Before anything else, the only way forward will be to absorb the supply of stablecoins that wants to exit before $UST can begin to repeg. This will be the only way to move forward. There is absolutely no escaping it.”
Because of this potential increase in minting capacity, the system would be able to quickly absorb UST.
In addition to this, Kwon plans to bring in additional external capital in the future in an effort to reduce the supply overhang on UST. However, due to the significant expense involved, additional research and investigation would need to be conducted on this topic. This applies to LUNA and UST holders alike.
Will the Anchor Protocol come to our rescue?
In the meantime, the Anchor Protocol Community planned to contribute to the reestablishment of the UST’s $1 peg. If that’s the case, then why is Anchor getting involved? The vast bulk of UST lending as well as stakes are processed through this DeFi platform.
The community has put forward a suggestion that suggests decreasing the minimum lending rates to 3.5 percent while increasing the maximum deposit interest rates to 5.5 percent. Everything taken into consideration comes with a 4% interest rate.
In the aftermath of this event, Anchor’s reserve would be temporarily prevented from further depletion. The proposal included the text,
“This should temporarily suspend the Anchor reserve from diminishing in such a way that TFL will not be required to deploy further UST,” the author writes. “This should assist to stopping the depeg death spiral.”
Is there any chance of LUNA making a reappearance, or has that particular ship already sailed?
While Terra works to resolve this issue, a number of big exchanges in South Korea have warned their consumers to exercise caution around the LUNA cryptocurrency. The alternative cryptocurrency was labelled as a “cautionary item” by both Upbit and Bithumb. Any further drop in price will very certainly result in the cryptocurrency’s removal from the trading platform.
At the time of publication, the price of LUNA had fallen to an all-time low of $2.18, representing a daily decrease of 92.70 percent. This occurred despite the increasing number of suggestions to preserve the coins. The UST experienced a decrease of 51 percent, which brought its value down to $0.43.
According to reports, the Crypto.com Exchange has temporarily halted trading in LUNA.
As a result of LUNA’s precipitous decline, one of its most important backers, Crypto.com, is said to have stopped facilitating trades in the cryptocurrency.
According to the sources, the cryptocurrency exchange Crypto.com, which is situated in Singapore and has more than 50 million members, has stopped trading in LUNA. It’s possible that the decision was made as a follow-up to the extreme market volatility that the coin has seen over the past few days. Investors have been left shaken and with significant losses as a result of the catastrophic catastrophe. Many investors have seen their life savings wiped out as a result of the historical downfall.
Those who believed that the decline had reached its conclusion were taken aback when LUNA announced another dip of 99 percent. Although this kind of thing has happened before with joke coins and meme coins, the fact that it happened to a coin that was placed in the top 10 is undoubtedly surprising.
Is it possible that LUNA will be shut down?
Because of this, the word has been spreading like wildfire despite the fact that Terra’s volume is presently $5,951,365,786, which is a decrease of nearly 53 percent. Since Do Kwon announced the recovery plans, the Terra community has been highly positive and optimistic about the possibility of a comeback. However, it appears that the words have not been translated into action because Terra is continuing to collapse.
UST did not exhibit any indications of recovery, and the currency is currently trading at $0.4611 at the time of this writing. Because of the intense buying and selling activity, major exchanges have temporarily suspended LUNA services. On May 10, Binance was forced to temporarily halt the processing of withdrawal requests due to the huge volume of orders and transactions.
Following in its predecessor’s footsteps, BitMex delisted the LUNA perpetual swap contracts it offered. LUNA and UST have become the latest additions to an extensive list of exchanges that have discontinued trading both coins as a result of a sharp decline in price. In the earlier part of the day, Binance Futures had also suspended trading in LUNA perpetual futures.
Upbit and Coinone, two of the most prominent cryptocurrency exchanges in South Korea, both made the announcement yesterday that they will discontinue offering LUNA trading to their consumers. In response to the judgement, both Korbit and Bithumb issued what they called “designated investing cautions” to their respective user bases.
Following Binance’s lead, BitMex will no longer offer trading options on LUNA and UST.
BitMex became the most recent exchange to restrict trading services for the aforementioned tokens as the selling frenzy on Terra’s native assets LUNA and UST continued.
BitMex, a platform for trading cryptocurrencies, announced on Thursday that it would immediately remove the LUNAUSD and LUNAUSDT everlasting swap contracts. The company mentioned the lack of availability of consistent spot values for the underlying indices as the reason for this decision.
According to the exchange, the contracts will be completed at 20:00 UTC on May 12, 2022, and following expiry, the profit or loss from perpetual contracts will be credited to the user’s Bitcoin balance. This will take place despite the fact that perpetual contracts have no end date.
LUNA and UST have joined a long list of exchanges that have already ceased trading of both tokens in the midst of a significant price decrease as a result of the news. Earlier in the day, Binance Futures terminated all LUNA perpetual contracts that were active on its trading platform. Additionally, the futures division of the world’s largest exchange by volume reduced the maximum leveraging on USDT-margined LUNA perpetual contracts from 21–25x to 8x. Previously, the maximum leverage was from 21–25x.
Upbit and Coinone, two of the most prominent cryptocurrency exchanges in South Korea, made the decision yesterday to discontinue LUNA trading for their customer base. As a result of the move, the cryptocurrency exchanges Korbit and Bithumb issued “designated investing warnings” to their respective user bases.
Crypto permanent were first introduced to the cryptocurrency market by BitMex in 2016, and they are distinguished by the availability of huge leverage, which can reach over 100 times the margin in some cases. Traders are required, as part of an auto-deleveraging process, to give up a portion of their gains in order to compensate for losses incurred during times of extreme volatility.
LUNA tokens are backed by reserves of the Terra network’s stablecoin, UST, and are intended to strengthen the Terra network. In theory, the UST can keep its peg by minting new LUNA and destroying existing currency. On the other hand, once the UST lost its 1:1 peg against by the U.S. dollar on May 9, investors began dumping both tokens in enormous quantities.
After Bitcoin’s price hit a yearlong low of $28,000 on Thursday, losses accelerated even higher and reached new highs. At the time of publication, one unit of LUNA could be purchased for $0.09, representing a decrease of 99.8 percent from its all-time high, while one unit of UST could be purchased for $0.65.
Following the Collapse of Luna, Terra Is Looking to New Blockchains
After the collapse of two connected cryptocurrencies, which caused them to become nearly worthless, a concept to construct a new blockchain for the luna coin arose as a potential solution. The NFTs belonging to Seth Green were taken in a phishing scheme. A legal battle is currently being fought between Nike and StockX, and the outcome of this conflict may have an impact on how intellectual property rights are implemented in NFTs in the future. Over the past week, the following occurred in the cryptocurrency industry:
After the recent crash, the CEO of terra blockchain has a strategy to bring luna back to life.
In the past week, the value of the cryptocurrencies luna and terraUSD, which are linked on the terra blockchain, plummeted and lost the majority of what they were worth. Those who had these tokens lost a significant portion of their initial investment.
On Monday, Do Kwon, the Chief Executive Officer of Terraform Labs, which is the business that is responsible for both luna and terraUSD, published a plan to “fork” the original terra blockchain platform into a new one. Luna token holders have the right to vote on the aforementioned proposal. There are still four days left for voters to cast their ballots, but as of right now, approximately 79 percent of votes have been cast in favour of the plan.
Kwon’s concept proposes the creation of a new terra blockchain from the existing one. This new terra blockchain will then replace the existing one as the default terra blockchain and introduce a new luna cryptocurrency. The terra blockchain that was used initially is going to be rebranded as “terra classic.” On the new terra blockchain, the original luna cryptocurrency as well as the terraUSD stablecoin, which are both close to having no value at all, would be rendered obsolete.
Someone has likely brought up the idea of forking a blockchain at some point in the past. Back in 2016, a hacker made off with millions of ether, which caused Ethereum to split off into a new network. There is currently functionality for both the Ethereum blockchain and the Ethereum Classic blockchain.
The most recent plan that has been presented to the Terra community in hopes of reviving the doomed Terra ecosystem is on pace to receive their approval. Even though the vote still has four days left, it has already reached a passing threshold after only three days, thus unless there is a significant turn of events, a new Terra network will be founded on May 27. Voters have the ability to change their minds at any time during the voting period.
Do Kwon, the founder of Terraform Labs, recently updated the “revival plan” that he had previously put on the Terra governance forum. The current Terra network is going to be rebranded as Terra Classic, and its native token will be called Luna Classic, according to the proposal (LUNC). It is planned that New LUNA will be sent through airdrop to those who staked Luna Classic, those who currently hold Luna Classic, those who currently hold UST, and a group of Terra ecosystem developers who are considered “important.” These projects include ones that are centred on decentralised exchange, a block explorer, payments apps, wallets, loan markets, bridges, and stablecoins; however, the algorithmic UST stablecoin is not one of them. The new network will operate on bridging Tether (USDT) and USDC rather than UST as its base currency.
In addition to an allocation of thirty percent going to a “community pool,” thirty-five percent will be distributed to holders of LUNA prior to the depegging of UST on May 7, 2022, which is referred to as “pre-attack,” and ten percent will be distributed to holders of “post-attack” LUNA as of a snapshot date of May 27, 2022. An additional ten percent will be distributed to Anchor UST donors at the time of the depegging, and fifteen percent will be distributed to UST holders as of May 27.
It is important to note that Terraform Labs will not include its own LUNA and UST holdings in the snapshot; the goal is for the new network to be totally governed by the community. They are also putting a limit on the amount of exposure required to qualify for the new token in order to give preference, not to whales, but to a wider number of community players.
To this point, more over half of the delegates to LUNA have cast their votes, with approximately 62 percent of those votes being in favour of the motion.
Investors conducting a damage assessment
The venture capital funds that have significant holdings in Terra have started to discuss their personal financial losses in public. The majority of these are LUNA tokens, which as of Saturday were trading for close to 0.000001 dollar per token, which is significantly down than their all-time high price of $119 on April 5, 2022.
Galaxy Digital has not reported the losses it has incurred on its ownership of LUNA; nevertheless, the company did record a net realised gain on digital assets of $356 million in the first quarter of 2022; a significant portion of this gain can be attributable to the sale of LUNA.
Mike Novogratz, CEO and founder of Galaxy, wrote in a shareholder letter that the LUNA disaster “will be a continual reminder that venture investing takes humility.” Novogratz had a LUNA tattoo etched on his arm in early January.
Delphi Digital was a vocal supporter of Terra and provided funding for the creation of decentralised applications (dApps) within the ecosystem. The team acknowledged in a blog post titled “Learnings From Last Week” that its $10 million investment in the Luna Foundation Guard campaign had been “completely wasted.” The investment was made through the Delphi Ventures arm of the company.
According to what was written in the report, Delphi Ventures did not make any sales of LUNA during this event.
The South Korean cryptocurrency venture capital firm Crypto VC Hashed has performed far more poorly. The company has delegated millions of LUNA tokens, which are currently valued more than $3 billion in total. Even though it was becoming abundantly evident that a “death spiral” would inevitably occur, it was difficult to sell these tokens due to the fact that the Terra network imposed a 21-day unbending period.
Originally published @ https://medium.com/general_knowledge/terra-luna-on-its-way-from-the-top-10-cryptocurrencies-to-99-crash-5bbf0bfa5b02
