What Happened to LUNA Bitcoin?

The most important lessons to take away

  • When the Luna cryptocurrency network fell apart the estimated loss was $60 billion of the value was erased of the digital currency market.
  • Algorithmic stablecoins (UST) are not identical to Tether and USD Coin that are secured by actual dollars or other assets that are stored in banks.
  • An arrest warrant has been issued to Do Kwon, the co-founder of Terraform Labs, where the twin tokens Luna and TerraUSD were held.

Terra Network and it’s chief, Do Kwon, rose to the top of the world of cryptocurrency during four years. They all ended with a devastating slide from glory. The Luna crypto network crashed in what’s deemed to be the biggest cryptocurrency crash in history and a reported $60 billion in losses that shook the world cryptocurrency market.

There are two tales about Luna cryptocurrency which is the stablecoin TerraUSD/UST as well as Luna’s actual Luna coin. When Luna and UST collapsed it caused a complete liquidity shortage in the crypto space, which led to a further catastrophic decline in value. The cryptocurrency community isn’t fully recovered.

To understand what transpired, let’s go over the events step-by-step.

What exactly is Luna crypto?

You might have heard of TerraUSD and Luna This is a brief overview of the specifics of both. A lot of moving parts in the Luna network prior to its demise.

TerraUSD (also called UST) as well as Luna are two coin siblings that are part of the same network.

Terra is a blockchain-based network, similar to Ethereum or Bitcoin which generates Luna tokens. The network was founded in the year 2018 with the help of Do Kwon and Daniel Shin of Terraform Labs.

Terraform Labs created the UST coin to function as an algorithmic stablecoin that is part of the Terra network. While the other stablecoins (USDC or Tether) are backed by fiat but the UST will not be supported by actual assets. Instead it’s value UST is backed by the token it shares with, Luna. The details will be discussed later.

Stablecoins are believed to be secure havens in the crypto world as they’re supposed to have a set value of approximately 1 USD. The aim is to provide an unchanging store of value for investors, in contrast to other volatile currencies (like Ethereum).

Luna was Terra’s native blockchain token, which was similar to the way Ethereum works. Ethereum network. Luna was used in four different capacities within its role in the Terra network:

  1. A way to pay for transaction charges on Terra network. Terra network.
  2. A mechanism to maintain the peg of Terra’s stablecoin.
  3. Staking Terra’s delegated proof of stake (DPoS) to verify network transactions.
  4. Participation in the governance of the platform by submitting and voting on proposed changes regarding modifications to Terra’s governance. Terra network.

What did Luna worth?

The Luna coin was worth about $116 in April, but was able to drop to less than one penny before it was removed from the market. The coin’s value went from less than $1 by the beginning of 2021, to generating a number of cryptocurrency millionaires within the space of an entire year. This has led to Kwon’s famed status as a hero among (some) cryptocurrency investors who are retail. Numerous success stories were reported in the press about how ordinary people could make a fortune through Luna.

The Luna token shot up to 135% within less than two months, before reaching its highest at the end of April in 2022. The most significant benefit was that you could put the value of your UST positions in Anchor’s Anchor lending platform to earn an annual return of 20. Many analysts thought that this rate was not sustainable.

Anchor Protocol Anchor Protocol, a decentralised financial market that was built upon the Terra blockchain. The platform gained popularity due to its advertised yield of 20% to UST holders who had deposited their coins on the platform. Then Anchor would then turn around and lend the deposit to a different investor. Many skeptical investors were concerned about the source of the money to pay these interest rates. Many considered it to be a Ponzi scheme. At one time there was a time when as high as 72 percent of UST was placed in Anchor since the platform was the main driver of market demand Terra.

What has happened to UST?

Before we discuss the crypto-related catastrophe it is necessary to talk about stablecoins in a brief manner. A stablecoin is tied to a currency that is more stable similar to it is tied to the US dollar. Tether or USDC are both linked to USD. Stablecoins can be used to mitigate volatility in the crypto industry. For instance, let’s say Ether’s value is $1,000. It is possible to exchange one Ether in exchange for 1000 USDC tokens. If investors anticipate a boom in the cryptocurrency market, they invest their money in stablecoins to secure their investments.

It was believed that the UST cryptocurrency was not supported by a real US Dollar but rather an algorithmic stablecoin. The idea was it was possible that Terraform Labs could use clever mechanisms and billions of Bitcoin reserves to sustain its peg in UST without the support in the USD.

To make UST you must burn Luna. For instance that, if Luna token’s value was $85 you could exchange 1 token to get 85 UST. The deflationary system was developed to ensure an increase in the long run for Luna.

To enable UST to keep its peg for a period of time, one UST could be swapped to one dollar worth of Luna at any point. If UST was to fall traders can earn profits by purchasing UST and then converting it in exchange for Luna.

Each of Luna and UST both crashed when UST was unable to peg its currency to the dollar, which is what made it stablecoin.

TerraUSD was a risk due to the fact that it wasn’t supported by treasuries, money, or other traditional assets such as the well-known stablecoin tether. Stability of UST was due to algorithms that tied its price to Luna. A lot of experts doubted that an algorithm could maintain two tokens in a stable state.

What was the reason for LUNA fail?

The Luna cryptocurrency crash was caused by its linkage with TerraUSD (UST) which is the stablecoin algorithmic of the Terra network.

In May, nearly two billion in UST was deemed unstaked (taken out of the Anchor Protocol), and hundreds of millions were swiftly liquidated. There is debate over whether this occurred as in response to increasing interest rates or was a deliberate assault on the Terra blockchain. The massive selling of UST brought down the cost for UST to $0.91 from $1. In the aftermath, traders began to swap the equivalent of 90 cents in UST for the equivalent of $1 Luna.

After a significant quantity of UST was removed The stablecoin then began to decline. In a state of panic the market flooded with UST and resulted in the minting Luna in greater quantities Luna along with an expansion of the circulation quantity of Luna.

Following the crisis, crypto exchanges began to remove Luna as well as UST pairings. In the end, Luna was abandoned as it was no longer worth the money.

What happened following What happened after Luna crash?

The Luna meltdown had a profound impact on the market for cryptocurrency that was already volatile and experiencing problems in the moment. It is estimated that the Luna crash actually sank bitcoin’s price and causing a $300 billion loss worth of value in the whole cryptocurrency market.

Crypto-giants Voyager and Celsius have filed for bankruptcy. Three Arrows Capital (3AC) was forced to liquidate.

Many people lost their entire savings and experienced financial hardships because of the Luna cryptocurrency crash. If you conduct an online search and you’ll see a number of these tragic tales. Many of the loyal Luna supporters (who identified themselves as “Lunatics”) joined Reddit forums to tell their horror tales. One crypto investor who was a retail trader admitted that they had lost $20,000 of their savings in Luna.

There were only winners who resigned their positions prior to the crash. One example to mention is the hedge fund Pantera Capital. Pantera Capital saw a 100x return on an investment that was initially $1.7 million. The company sold it’s Luna stake prior to its collapse, resulting in the sum in the amount of $171 million.

What did happen to the Luna crypto-founder?

Do Kwon shared a recovery plan for Luna and the situation appeared to be looking promising for a short period in May, following the initial crash. However, the currency plunged. The coin was then discarded. Terra was eventually able to launch Luna 2.0, a new cryptocurrency. Luna 2.0.

On September 15th, it was revealed that an official located in South Korea had issued an arrest warrant for Do Kwon. The announcement came nearly three months since the demise of Luna and UST two tokens Terraform Labs issued. Do Kwon and five other individuals are being investigated for infringing local market regulations.

Officials from South Korea seek to revoke Kwon’s passport since they believe he’s currently in Singapore. In the event that this legal process goes through, Kwon would have to return to South Korea within 14 days following the notification of the cancellation. Ministry officials are currently looking into the application.

Investors who lost money on Luna are filing a lawsuit with the local prosecutor alleging the Kwon has been implicated in illegal and fraudulent fundraising. It is estimated that around 280,000 investors in South Korea had invested money in Luna.

What should you invest in?

If you’re considering investing in the crypto space it is possible to think about investing in a kit, such as one of our cryptocurrency Kit and emerging Tech Kit. Both kits are designed to diversify risk across different industries and not only invest in one particular coin or business, but rather the entire market. Both kits make use of AI to distribute the weight of portfolios every week to 4 vertices: crypto Tech ETFs and large technology firms and smaller tech firms. The users can enable the Portfolio Protection feature at any point to help protect your investment gains and minimize the risk of losing money, regardless of the industry in which you invest.

The most important thing is the bottom line

If you’re planning make a bet on digital currencies and other highly volatile assets it’s important to recognize that there’s an incredibly high risk with it. We hope that this tragic Luna crash is more of a minor black swan, rather as opposed to the beginning of a new period. The main lesson is that if something looks too promising to be true the odds are that it is. In addition, for those who are still awestruck by cryptocurrency in the long run it is advisable to limit investments in this area to 5-10% of one’s portfolio.

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