The Collapse Of The Luna Cryptocurrency: How And Why It Matters
![The Collapse Of The Luna Cryptocurrency](https://aomarkets.com/wp-content/uploads/2022/05/The-Collapse-Of-The-Luna-Cryptocurrency-780x400.png)
UST is an algorithmic stable coin, which means it works differently than most other stable coins. Popular stable coins like tether (USDT) and USD Coin (USDC) are backed by assets like fiat dollars in a bank account, treasuries, or short-term commercial debt.
$100 Billion Or More May Not Have Adequate Liquid Collateral
This strategy is also risky because issuers have been sneaky about the actual breakdown of their reserves at times, especially with USDT, and observers are concerned that these assets may not have enough liquid collateral to redeem the $100 billion or more in assets they support.
![The Collapse Of The Luna Cryptocurrency](https://aomarkets.com/wp-content/uploads/2022/05/The-Collapse-Of-The-Luna-Cryptocurrency.png)
Right now, the bitcoin market isn’t looking good. Check out and all you’ll see is red: Bitcoin and Ethereum are both down over 30% week-to-week, reaching lows not seen before 2020, while altcoins like Solana, dogecoin, and Cardano are much worse.
It’s bad news for cryptocurrency investors, but it’s not uncommon. These are notoriously volatile investments that react to turmoil in the economy.
The collapse of the luna cryptocurrency and its associated TerraUSD (UST) stable coin is even more unique and significant. You may not be familiar with UST or what a stable coin is, but it’s a significant deal.
Hundreds of millions of dollars in cryptocurrency wealth have disappeared, sending shockwaves through the market.
The UST stable coin and luna, both of which are Terra blockchain projects. The UST coin, which is supposed to always have the same value as a US dollar, was de-pegged on Saturday and has since fallen to as low as 30 cents. Then there’s Luna, the ecosystem’s beating heart. Its value has plummeted in one of the most spectacular cryptocurrency crashes ever seen.
Why Does It Matter?
The price of the coin dropped from $116 in April to less than a penny on Thursday. Its market capitalization has dropped to $641 million from a high of almost $40 billion.
Luna and UST alone have wiped away almost $15 billion in cryptocurrency value.
Self-harm has been reported by many who had most of their funds invested in UST; while these reports cannot be verified, it is apparent that many people lost a lot of money in the crash.
Loss On Social Networking Sites
JJ Olatunji, also known as KSI, a British YouTuber, and rapper, revealed on Thursday morning that the $2.8 million he put into Do Kwon’s shattered cryptocurrency, Terra (LUNA), had plunged to a new low of less than $1,000 in a single day.
It raises concerns about the stability of other stable coins. UST was unique in that, unlike tether and USDC, it was an algorithmic stable coin.
However, the coins’ solidity has long been questioned: Last year, the attorney general of New York accused tether of misleading about how much money it had in dollar reserves.
This is historic for the crypto markets Because of its size and significance in terms of the number of people who lost substantial value, this is a defining moment for the space.
Finally, and perhaps most importantly, the fall of UST has sparked the interest of powerful politicians and authorities. UST’s de-pegging, according to Secretary of the Treasury Janet Yellen, “just illustrates that this [stable coins] is a rapidly developing product with rapidly growing dangers.”