Terra Luna

TERRA LUNA : HERO TO ZERO

ryptocurrency is the biggest thing that has happened to the financial market in the last ten years. We can see that some people make a fortune out of it, but some people lose their shirts. This situation is no different from what happened to the Terra Luna tragedy, whereby 60 billion dollars was wiped out of the digital currency space on May 7, 2022. Before diving into that, what is cryptocurrency, and how does it work? Cryptocurrencies are decentralised digital currencies that you can buy, sell and exchange directly without an intermediary like a bank. Cryptocurrency is built on a distributed digital record called a blockchain that acts as a medium where information transfer of transactions occurs. Terra Luna uses the same base as any crypto coin, except it has the characteristic that made Luna such a stable coin in the first place. Terra Luna is a brilliant coin linked to the dollar by algorithms and game theory.

This means, technically, two markets of Terra Luna and UST simultaneously balance each other. For instance, if UST ever fell below a dollar, arbitrages would buy UST and then buy luna at a discount which would prop up the price of UST. If the opposite happened and UST went C by Muhammad Arshad above a dollar, people would use their lunar coins to buy UST and resell them on another platform, bringing the price down.To summarise, when terra's value drops, luna holders are supposed to trade in their coins, which increases the cost automatically. This enables both markets to ensure their supply and demand balance in respect of the US dollar. Some call this ponzinomics, whose value was supposed to stay steady, offering some safety in the wild west of crypto. The demand for Terra Luna increased even more after the Luna company promised a 20% return to its coin holder. This clever system was created by Do Kwon, the co-founder of Terraform Labs, but ultimately failed. You may be asking “why did it fail?”. The reason was a significant sell-off of UST worth billions of dollars. This caused the stable coin's supply to become highly in surplus, causing its value to the US dollar to shatter. More people sold off UST, -

-which led to the minting of more Luna and an increase in the circulating supply of Luna.As a result, UST's support for the unstable coin Terra Luna is no longer there, causing Terra Luna to lose 99% of its value. The price was trading at $6.25 in the first place, plummeting to only 0.02$. People who were hopeful of getting 20% in return ended up with no return. Both coins were falling so fast that Binance stopped selling momentarily. In the aftermath of this, Luna is abandoned as it is worthless. Some say the private entity that dumped billions worth of UST is the one to blame, but some say an algorithmic stablecoin like this is built to fail. In the end, Do Kwon, the coin's founder, tries to revive his beloved coins through another complex process involving trying to eliminate UST's surplus supply. But this effort is like fighting a losing battle, as people have already lost their trust in Terra Luna. In conclusion, this disastrous event reminds us that cryptocurrency trading is like any other investment with a big risk. We should keep in mind not to use our life savings as some did with Terra Luna, which ended them up with nothing. Although cryptocurrency is a great way for us to invest and build our portfolio, it is risky as minimal government intervention involved could not prevent any market movers with enormous capital.