The Terra LUNA ‘stablecoin’ crash was the biggest drop in crypto history for a single coin.
Not long ago, the coin was worth $119.18 USD per token. Now? At the time of writing this, the price per token is a dismal $0.0002111 per token, rounding the coin to a 100% loss. In spite of this, the Terra LUNA community showed some resilience, with a 1000% surge in price after the coin hit its all time low.
In a few short steps, here’s what happened to the market, and what we can take from this infamous crash.
1. An unfortunate fact is that all Algorithmic-based stablecoins have failed so far. Terra seemed like they had proven everyone wrong, yet the lacking of backed assets proved to be detrimental to the algorithm. To sustain an algorithmic stablecoin in the future, new measures have to be taken to avoid such a disastrous event again, which revolve around how to back an algorithmic stablecoin.
2. There is high speculation that the Terra LUNA and UST sell-off was a carefully planned attack. One individual wallet with over $1 billion in UST decided to sell his entire position over a matter of hours. Despite the speculation, there was nothing illegal technically done. The wallet user sold UST back into Terra and then exited the market for a profit of over $900 million, which is simply identifying an opportunity and taking it. If anyone is to blame, the Terra team, especially founder Do Kwong, were aware of uncharacteristic behavior weeks prior such as slow stabilization in price to match the US peg, something that clearly should have been addressed right away, but wasn’t.
3. Unsurprisingly, the market dump caused by UST and Terra LUNA has ignited the conversation around distribution. Right now Bitcoin is struggling to maintain its price at the $30K mark, signing for more potential bearishness across the market. A further sell from a Bitcoin whale or institution holding large bags of BTC could send the market plunging to further depths. Until crypto is adopted more on a global scale, the risk of just one person manipulating the entire market is quite real. Remember, crypto is still the wild west. Having the patience to stay in crypto for the long term is the best risk mitigation strategy.
4. Other stablecoins haven’t been so hot since LUNA and UST dived, with Tether depegging from the US dollar down to $0.95 cents. Stablecoins have a lot to prove, more so than ever. Being pegged to the US dollar in no way suggests that a stablecoin is a safe investment.