UST and Luna Coins collide, causing crypto chaos

UST and Luna Coins collide, causing crypto chaos ...

Let''s take a look at the danger after days of cryptocurrency chaos.

In November, the cryptocurrency market was valued at $1.35 trillion, compared to the $3 trillion it received in November.

The red is still prevalent in almost all digital currencies, even stablecoins.

Bitcoin, the cryptocurrency''s king, has lost almost 56% of its market value as compared to the previous record of $69,044.77 achieved on November 10, according to CoinGecko.Prices are now around $30,000 after falling as low as $28,000, levels not seen since December 2020.

Ether, the popular Ethereum blockchain that allows the creation of decentralized finance apps and NFTs, has dropped 57% from its all-time high of $4,878.26, which was reached on November 10.

Dogecoin and shiba inu, cryptocurrency lovers, have dropped from their all-time high 84.8 percent and 84% respectively.

Only a few stablecoins, who aren''t supposed to be volatile because they track the dollar, have recovered. Tether, the world''s leading stablecoin by market value, has increased 0.2 percent in the last seven days, while USD Coin has increased 0.5 percent, while Binance USD has increased 0.4 percent.

UST and Luna Are Next to Worthless

The Terra ecosystem was jeopardized a few weeks ago due to the disaster.

Its native token games, including the stablecoin UST or TerraUSD, and the Luna token, have lost almost all of their value.

UST, which is tied to the dollar, at the last check was down to $0.102542 -- a bit more than a dime. It''s down 84% in the last 24 hours, according to CoinGecko. The stablecoin, which has lost stability, is down 91.9 percent from its high of $1.09 on January 11.

The Luna token has dropped to $0.0001826, and the cryptocurrency has lost 99.9% of its value in the past 24 hours. According to CoinGecko, it traded as high as $119.18 on April 5th.

On May 13, Binance and OKX decided to delist two cryptos in order to protect their customers.

"At #Binance, we prioritize user protection," Changpeng, the CEO of Binance, said in a tweet. "We made the decision to suspend LUNA and UST trading."

"An exponential amount of new LUNA were discovered due to shortcomings in the design of the Terra protocol. Their validators have suspended their entire network, resulting in no deposits or withdrawals possible to or from any exchange." CZ added.

"Some of our customers, unaware of the huge amounts of newly minted LUNA outside the exchange, began to purchase LUNA again, without understanding that as soon as deposits are allowed, the price will likely crash further. Due to these significant challenges, we suspended trading."

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Why the Crash?

Many investors have liquidated crypto in line with the equity market''s weakness because they fear a worsening economic situation. Since crypto is now considered a risky asset, they are the first to suffer from negative investor sentiment.

After the disaster of the algorithmic stablecoin UST and Luna coin, which both belong to the Terra ecosystem, the selloff is triggered by fears of rug pulls and crypto scams.

This week, UST/TerraUSD lost the $1 peg. The currency was dragged to $0.22. The Luna token is down more than 99% in value.

UST, which has a mechanism with Luna, has one main objective: When the price decreases, UST owners can sell their assets to Luna Foundation Guard in exchange for $1. This way, the stablecoin reserve decreases, increasing its value until it returns to normal levels. However, the system does not take into account situations where users redeem huge amounts of their UST once in a brief period.

Faced with worries related to growth, several investors over the weekend clamourously parted with their UST assets. In response, the LFG, which has a reserve of bitcoins, sold everything to reinject capital into the UST. Making matters worse, the bitcoins purchased were valued at $42,000 at the time and now have lost a significant part of their value.

What Now?

Investors continue to sell their UST in masse as there are no other emergency solutions.

Do Kwon, the South Korean cryptocurrency entrepreneur who co-founded Terraform Labs, intends to purchase $10 billion in bitcoin through LFG. These funds will serve as a backstop if the value of the UST falls.

Bitcoin would thus be the Terra ecosystem''s reserve currency.

The aim of the bitcoin transaction is to allow UST holders to redeem their tokens. But how will this effect? No answers have been given yet.

LFG currently holds $3.5 billion of bitcoin. On Monday, the foundation reported disbursing $1.5 billion of those funds: it''s lending $750 million of bitcoin to trading firms to protect the value of UST, and it will use $750 million of UST to continue accumulating bitcoins.

It''s hard to know if it will work.

What Are the Losers From the Chaos?

Crypto

The UST/Luna catastrophe has thrown a huge hole into all of the cryptosphere''s efforts and initiatives to convince the general public and regulators that crypto is the future, and that, in the near future, it is maturing. As many people again believe such projects are bribery.

Tesla

On February 1, 2021, the premium electric vehicle manufacturer invested $1.5 billion in bitcoin. This investment is currently valued at $1.32 billion. According to Bitcoin Treasuries, Tesla may well depreciate this investment and record a charge in its accounts.

Elon Musk''s group hasn''t submitted itsSecurities and Exchange CommissionForm 10-Q, a document in which listed companies must identify the difficulties associated with their businesses. There''s little doubt that when Tesla (TSLA) - Get Tesla Inc Reportdoes file the form, it will disclose the value of its 43,200 bitcoins.

MicroStrategy and Michael Saylor

With their 2020 strategy to implement an investment strategy in the most popular cryptocurrency, Michael Saylor and MicroStrategy (MSTR) - Get MicroStrategy Incorporated Class A Report.

According to Bitcoin Treasuries, the company has on its balance sheet 129,218 bitcoins sold at $3.97 billion. At last check this investment was quite small.

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