Luna Crypto, once one of the most famous cryptocurrencies in the world, saw its founder, Do Kwon, rise to prominence in just four years, making Luna one of the most valued cryptocurrencies globally. However, one day, Do Kwon woke up to discover that Terra, his company, had experienced the biggest crypto crash of all time. Terra Luna Crypto lost $60 billion, shaking the entire global digital currency market. What was the reason behind the crash? Was it a conspiracy or just another operational failure? Read the blog to find out whether your answer is correct.
Terra Luna Crypto Simplified!
For those who are new to the crypto world, we have brought you a brief introduction to Luna Crypto:
TerraUSD (UST) and Luna are interconnected coins on the Terra blockchain, created by Do Kwon and Daniel Shin of Terraform Labs in 2018. Similar to Ethereum or Bitcoin, Terra generates Luna tokens. TerraUSD is designed to maintain a stable value, while Luna supports its stability. Despite their innovative setup, the network eventually collapsed due to various complexities within the Luna ecosystem, leading to significant market repercussions.
What was the Role Of Luna Crypto?
There are four different types of roles Luna Crypto used to perform in the Terra network:
- Used as the payment mechanism for transaction fees in the Terra network.
- Mechanism for maintaining Terra’s stablecoin peg.
- Engaging in Terra’s delegated proof of stake (DPoS) system to authenticate network transactions.
- Involvement in the governance of the platform, contributing to and deciding on amendments within the Terra network.
The Rise Of The Big Fall
The massive Luna crypto crash was caused by its connection with TerraUSD (UST), the algorithmic stablecoin of the Terra network. How would the crash have happened if it had been the stablecoin? Well, that’s a genuine question. So, actually, what happened was that on May 7th, more than $2 billion worth of UST was unstacked, and millions of these coins were liquidated on the same day! And guess what happened? The law of economics came into play, and because of excess sales, the price of the UST went from $0.91 to $1. This might look merely a 9% fall, but it led to a huge snowball effect and crashed the entire market.
Also read, Why is Thailand the safe haven for crypto investment?
After a large quantity of UST was offloaded, the stablecoin started to depeg, and the so-called stablecoin lost its “stability.” Such a situation created a lot of panic in the market, and more people sold off UST, which led to the minting of more Terra Luna Crypto and an increase in Luna’s circulation. Which ultimately led to the biggest crash in the history of the crypto world.
What Happened After Luna Crypto Crash?
Soon after the Luna crypto crash, all the crypto exchanges started delisting Terra Luna crypto and UST as they became worthless after the crash. But the impact of the crash didn’t end there.
The Luna meltdown devastated the already volatile cryptocurrency market, which was experiencing difficulties at the time. It’s estimated that the crash led to a $300 billion loss in value across the entire cryptocurrency space, including a significant drop in Bitcoin’s price. Prominent crypto firms Voyager and Celsius filed for bankruptcy, and Three Arrows Capital (3AC) faced liquidation. Many individuals lost their life savings and endured financial hardships due to the Luna crypto crash.
A quick online search reveals numerous heartbreaking stories, with loyal Luna crypto enthusiasts, who called themselves “Lunatics,” sharing their experiences on Reddit. One retail investor even disclosed losing $20,000 in savings. Do you know who was the only happy person here? The investors who squared off from their buy positions before the crash. The biggest winner among them was the hedge fund Pantera Capital. Their investment grew by 100x from an initial investment of $1.7 million to $171 million.
Was it a conspiracy?
It is not yet clear why Luna crypto collapsed whether it was a random incident in crypto or part of the bigger plan. Various analysts believe that this happened as a response to rising interest rates, and some claim it was a malicious attack on the Terra blockchain. The clear answer is yet to be found. For more mind-blowing content, stay tuned to us, and do not forget to follow us on various social media handles.
