What’s the buzz about Terra (Luna)?
There’s never a dull day in crypto, Isn’t it? Cryptocurrency prices fluctuate dramatically on a daily basis in the crypto market. Are you an ardent crypto enthusiast? Read further to know what led to the Terra LUNA crash.
Before we go into more specifics, Let’s start with what is Terra Luna all about. Terra UST is an “algorithmic stablecoin”, a blockchain protocol that leverages decentralized stablecoins to support a vibrant ecosystem. There are several types of stable coins, each with its own set of risks. Fiat-backed stable coins include Tether (USDT) and USD Coin (USDC). Implying every token produced should have $1 in reserve as backing.
- In terms of market capitalization UST is currently the third-largest stablecoin.
- The adoption of UST as a stable coin is vital to the Terra ecosystem’s development, indicating the strong link between the LUNA token and UST.
- LUNA invests in UST, but loses money as the demand for UST grows.
- Meanwhile, if UST is viewed as a volatile crypto coin, the value of LUNA may plummet.
- As a result of the Wormhole hack, UST lost its peg, forcing the Terra LUNA worth to decrease briefly.
Subsequently, when UST began trading substantially below its dollar peg, users began exchanging UST for competing stablecoins, shrinking the UST Curve pool. Short selling caused the price of LUNA and the UST collateral to fall. Terra was compelled to mint more LUNA to relieve the negative price pressure.
Currently, the UST rate is going down, which has now resulted in the value drop of LUNA even though the peg has not been reinstalled yet. Even the Terran Treasury’s $1.5 billion Bitcoin auction has not completely restored UST’s faith with users.
Catch the latest updates on the market changes with bitsCrunch. Stay tuned for more.
Originally published at https://bitscrunch.com on May 12, 2022.