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The Rise and Fall of the Terra ecosystem

Crypto 06/21/22

The Rise and Fall of the Terra ecosystem

We all know that during market crashes when bitcoin tends to go down 20-30 %, altcoins go down with it and with a higher crash margin, but no one anticipated that during the most recent crash that one of the top 10 cryptocurrencies will go in the course of 1 week close to 0 valuations. Basically considering week before Luna’s crash, its market cap was close to 18 billion $.

So what happened?

To understand why Luna crashed and burned we’d first need to understand its relationship to UST.

UST was terra’s native stable coin, pegged to $1, and the way the Terra foundation was trying to keep the $1 pegged price was by burning or minting Luna coins and exchanging them to UST. During the course of the weekend, while crypto was still suffering from the 20-30 % market de-valuation, a large number of whale investors started selling off their UST, causing it to depreciate in value faster than Terra’s algorithm could burn/mint new tokens and try to keep UST’s value pegged at $1. So on Monday morning while UST fell to around 70 cents per coin, new Luna coins were already minted and they managed to bring it back up afloat to about 90 cents unfortunately that lasted less than 24 hours, cause due to "a stable coin" not being actually that stable, everybody started exchanging their UST at a loss, thus triggering a fall for UST to somewhere about 50 cents per UST. The Terra foundation then decided to mint, even more, Luna causing an overinflation in a matter of hours, which in return triggered the massive dumps on all exchanges, a fact that led at some point to exchanges halting LUNA deposits/withdrawals. In a matter of 1 week, Luna’s total supply went around 300 million tokens to a staggering 6 trillion tokens, causing the price to plummet from $80 per coin to literally 0, or $ 0.00003 to be exact, it might have gone even further if trading platforms hadn't completely stopped any trades for the coin.

Repercussions

The fall of the Terra ecosystem, even though it’s still early in the aftermath, is considered one of the biggest blood baths in crypto history, as one of the most promising cryptocurrencies and ecosystems out there was completely whipped out in a matter of less than a week and it will forever be a chapter in crypto history's darkest moments.

Thousands of people lost their life savings along with Terra's crash or the crypto portfolios that they were building for years and unfortunately, there have been already 8 cases reported about suicides caused by the financial damage caused by Luna.

One of the other negative impacts it might have on crypto in the long term would be that financial regulators will use Terra as an example to implement restrictions on the crypto space.

While it’s still early to feel the repercussions of one of the top 10 cryptocurrencies disappearing in a matter of days, we know the aftershock of this event will haunt the crypto community for years to come, so if you’ve been affected by this just remember you’re not alone and everything can be rebuilt!