Luna 100% fall in 7 days
Luna’s downfall started over the weekend when its sister token UST, which is a stablecoin, de-pegged from its $1 value after big investors started dumping millions of dollars’ worth of UST over the weekend.
A stablecoin is usually linked to an underlying asset such as the US dollar or a precious metal such as gold. TerraUSD is a decentralised algorithmic stablecoin, meaning rather than being backed by an asset, UST uses complex codes to create new coins or destroy old ones to maintain a steady price at $1.
All stablecoins have a governance token, which provides the stability. In the case of UST, it is Luna, which explains the correlation between both the tokens.
However, due the recent fall in the overall crypto market, UST failed to stabilize and hit a low of $ 0.0449 on Friday morning. The creators of Terra attempted to stabilize the token, but have failed in their efforts.
UST market capitalization tumbled from over $18 billion to less than $2 billion since last Saturday.
“The current Luna fiasco is a great learning opportunity for the global crypto community as it has revealed the weak links within the algorithm-based stablecoin ecosystem. It is important to note that Terra network is one of the most tech-savvy in the crypto industry and Terra UST is a pioneer in the algo-based stablecoin race. The LUNA crisis reiterates the fact that crypto as an asset is highly volatile and investors need to trade with caution with a long-term horizon of 2–3 years to stay profitable,” said Charles Tan, chief marketing officer at Atato, a licensed Multi-Party Computation(MPC) crypto custodian wallet.