The Luna crypto crash of early May saw the Terra Luna crypto plummeting to an all-new low, crashing hard in terms of pricing, with its stablecoin, TerraUSD (UST) losing its peg.
At the time of publication, the Luna Classic priceis down 6% and currently sits at $0.000091. At the same time, UST has also gained momentum and is down by 6.95% ($0.03356) in the last 24 hours.
So, while a Luna recoveryplan is now ongoing via Luna 2.0, what caused the Luna and TerraUSD prices to first plummet?
What Happened To Terra Luna?
The Luna crypto crash comes from its link to TerraUSD (UST), the algorithmic stablecoin of the Terra ecosystem.
UST is an algorithmic stablecoin and is operated via computer codes that help maintain its price equilibrium. The process involves burning or minting LUNA/UST to maintain the price of these tokens.
When a UST is minted, $1 of Luna is burned, while this also happens the other way around for Luna minting and UST burning. As UST threatens to go below its peg, holders will sell their UST (or burn it) for $1 of Luna, making a slight profit. This is until UST rises above $1, when the opposite encouragement happens.
After a large amount of UST was dumped, the stablecoin started to depeg. More UST was sold in a mass panic, minting more Luna and increasing the Luna circulating supply. This had the knock-on effect of then crashing the price of Luna.
This circulating supply inflation has drastically increased since the crash. Previously, the circulating supply sat at around 345 million Luna. On May 12, it was 3.47 billion Luna, according to analytics data. As of July 26, it was now 6,568.79B LUNC, where it remained ever since. Luna burn attempted to reduce this circulating supply.
The Luna Foundation Guard (LFG) had been purchasing Bitcoin to save UST from depegging, but the practice did not work amidst the gradual crypto meltdown.
