Over the course of four years, the Terra network and its founder, Do Kwon, were well-known in the cryptocurrency industry, but everything came to a catastrophic conclusion. The Luna crypto network crashed, causing the worldwide digital currency market to tremble and being regarded as the biggest crypto meltdown ever. If you are curious about “How did Luna crash?”, just keep reading. We will explain what happened to Terra Luna.
What Is Luna Crypto?
You may have heard about TerraUSD and Luna; to give you a quick overview of each, go here. The Luna network had a lot of moving elements before it collapsed.
Luna and TerraUSD, commonly referred to as UST, are sibling coins that operate on the same network. Luna coins are created by Terra, a blockchain network that is comparable to Ethereum or Bitcoin. Terraform Labs' Do Kwon and Daniel Shin founded the network in 2018.
The UST coin was developed by Terraform Labs to function as an algorithmic stablecoin on the Terra network. The UST would not be backed by physical assets, unlike other stablecoins like USDC or Tether, which are backed by currency. As an alternative, the value of UST would be supported by Luna, its sister token. Later, more on that.
Since stablecoins are designed to have a set value of about 1 USD, they are seen as safe havens in the cryptocurrency world. To provide investors with a stable store of value that is different from other volatile coins (like ethereum). To how ether is utilized on the Ethereum network, Luna was Terra's native blockchain coin.
How Much Was Luna Worth?
A Luna coin was selling for over $116 in April before falling to a penny's worth and being delisted. Before that, within a year the coin moved from having a value of less than $1 in early 2021 to making numerous crypto billionaires. Due to this, Kwon gained cult status among (some) retail cryptocurrency investors. The media was flooded with success stories of how common people had made fortunes through Luna.
Between January 2022 and April 2022, when it peaked, the value of the Luna token soared by around 135%. The biggest perk was the opportunity to stake your UST holdings for a 20% annual income on the Anchor lending platform. According to many analysts, was unsustainable.
How Did Luna Crash?
Due to its association with TerraUSD (UST), the Terra network's algorithmic stablecoin, the Luna cryptocurrency crashed.
On May 7, UST worth over $2 billion was unstaked (removed from the Anchor Protocol), and a large portion of it was rapidly liquidated. There is disagreement about whether this occurred in response to higher interest rates or if the Terra blockchain was the target of an intentional attack. The massive sell-offs reduced the price of UST from $1 to $0.91. As a result, traders began exchanging $1 worth of Luna for 90 cents worth of UST.
The stablecoin began to depeg after a sizable amount of UST was offloaded. More people sold their UST in a panic, which increased the amount of Luna that was produced and circulated.
Cryptocurrency exchanges started to remove the Luna and UST pairings after this crash. In the end, Luna was discarded because it was no longer useful.
What Were The Effects Of Luna Crash?
The entire cryptocurrency market, which was already quite volatile and having trouble at the time, was affected by the Luna crash. The Luna collapse is thought to have tanked the price of bitcoin and destroyed $300 billion worth of value throughout the whole cryptocurrency market.
Crypto industry pioneers Voyager and Celsius declared bankruptcy. Three Arrows Capital (3AC) was compelled to go out of business.
The Luna crypto meltdown caused a lot of people to lose their life savings and experience severe difficulty. Many of these horrible tales may be found online with a little search. Many devoted Luna supporters—referred to as "Lunatics"—took to Reddit forums to express their tragic tales. One novice cryptocurrency trader even admitted that they had lost their $20,000 in savings in Luna.
Those that sold their positions prior to the crash were the only ones to profit. We must single out Pantera Capital, a hedge fund, as a winner. On a $1.7 million initial investment, they received a 100x return. Prior to the collapse, the The company sold its Luna holdings for a profit of $171 million.
The Bottom Line
So, this is “How did Luna crash?”. If you plan to invest in cryptocurrencies and other highly volatile assets, you must acknowledge that there will be a significant amount of risk involved. Hopefully, this terrible Luna collapse is only a passing, black swan occurrence rather than the beginning of an age. The most important lesson to learn is that investments that seem too good to be true usually are. Secondarily, it would be wise to keep these investments to 5–10% of one's portfolio for investors who are still long-term bulls on cryptocurrency.
