Over the course of four years, the Terra network and its founder, Do Kwon, became well-known in the cryptocurrency world, but everything came to a disastrous end. The Luna crypto network crashed, causing the global digital currency market to tremble and being regarded as the biggest crypto crash ever. Why did Luna crash?
The TerraUSD/UST stablecoin and the actual Luna coin are the two strands of the Luna cryptocurrency story. Following the collapse of UST and Luna, there was a complete lack of liquidity in the cryptocurrency market, which resulted in an even worse loss of value. The cryptocurrency community has yet to fully recover. First of all, let's learn from the start.
What is Luna Crypto?
Here is a brief explanation of TerraUSD and Luna, which you may have heard of. 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.
How Much Was Luna?
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.
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. Many analysts believed that this absurd rate could not be maintained.
Why 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, merchants began exchanging $1 worth of Luna for 90 cents worth of UST.
Luna Crash Effect On Crypto
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.
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 threads to share their tragic tales. One novice cryptocurrency investor even acknowledged that they had lost their $20,000 savings in Luna.
Summary
The reason why Luna crashed was due to its relation with TerraUSD AKA UST. 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. So, this is the answer for “ Why did Luna crash?”.
