LUNA, LUNA Again, ans Lastly LUNA
What can be said that hasn't been said already. For one, LUNA was one of those shocking crypto projects that took the crypto world by storm. Its meterioc rise into the top 10 cryptos by market cap certainly turned some eyes over. However, it certainly has given crypto investors a shocker. Not only has it dropped of the top 10 crypto list by market cap, but it has tanked 99.99%. Lets repeat that, it literally lost its entire value over a matter of days. As for its supply, it went from having 700 million coins in circulation to over 6.7 trillion. Thats right, trillion with a T.
There is no question , that Terra (UST) falling off its peg and has given investors of this project something to worry about. In fact, there are people who have lost their lives savings from the recent collapse of this project.
To understand the recent collapse we need to understand how this project works. In the world of stablecoins, you can either have stablecoins that are backed up by some collateral, or which are priced algorithmically.
So how does LUNA/UST work. The project uses LUNA which can always swap 1 UST for $1 worth of LUNA. This is where the price stability of UST comes into play. If the price of UST is above $1, lets say $1.01, LUNA holders can burn LUNA and swap $1 of LUNA for 1 UST. They then can sell their 1 UST for $1.01, profiting $.01. The selling will ultimately the price reach $1. If on the other hand, 1 UST is priced at $0.99, users can buy 1 UST for $0.99 and swap that one UST for $1 worth of LUNA. Traders can then trade that $1 of LUNA and profit $.01.
The problem with this system is that if the price of LUNA keeps spiraling down, then the entire system doesn't work anymore. You will have a cascating affect that we saw. The price of LUNA falls along with the price of UST.
The technical term for this is a "death spiral". Their has been proposals twitted out by Founder Kwon, saying that it would need to issue more LUNA to fix this. The problem with this system is that the protocol can't mint LUNA fast enough. Although, there is a community proposal to increase the supply which can be found here.
As for LUNA, it is currently trading below a cent. That is right, after reaching an all time high, it is now worth below a cent and spiraling downwards as we speak. Keep in mind there is more LUNA's out in circulation.
Unstoppable Force meets an Immovable Object
Interest rate, meet the crypto market. After what appeared to be a bold move to tackle inflation, the federal reserve has decided to raise inflation rate. Although not surprising considering the issue with inflation, one things was certain, the markets would take a tumble.
This became more apparent in the crypto market where Bitcoin feel as low as $28k. It hasn't seen this level since the summer of last year around May time. As for other crypto projects, most of them have gone downwards as well. There is no denying that the crypto market benefited from the added liquidity from excess federal reserve printing. Nevertheless, invesotrs should be careful in trading in this market as its volatility becomes more apparent each day.
Going, Going, Gone!
What better way to end this blog than with UST. That is right, it is going, going, gone, but in the wrong direction. After depegging from the price of $1, it has spiraled downwards so much so it was trading at $.06. The idea behind stablecoins is to provide price stability in the crypto space by pegging its value to a fiat currency, in this case the USD. After UST was extracted from Anchor Protocol, there was an excess supply of UST. The selling pressure coupled with the downward spiral of LUNA has caused this depeg to further increase. In fact, the recent selling and shorting of UST has caused its depeg to accelerate faster.
As for its holders and users, many of them are letting their emotions and dissatisfaction with the current standing of the project. LUNA is making some changes to make one last attempt in pegging UST back to a dollar. In doing so, it hopes to also gain the trust of the community and investors. Only time will tell where this coin will be headed.
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