The price of the cryptocurrency Luna, which was in the top ten in terms of market capitalization a few days ago, collapsed to almost zero. Last week, the Luna token was worth around $85. A few days ago, the situation changed dramatically, and at the time of writing this note, the cryptocurrency is trading at $0.005 per unit.
Remember that Luna is part of the Terra Project, whose ecosystem aims to serve as a bridge between cryptocurrencies and traditional finance. To implement the plan, stablecoins, which are digital coins tied to the rate of a real national currency, were added to the ecosystem.
Terra USD or UST is an algorithmic stablecoin whose parity against the dollar is ensured by a specific algorithm: when the coin price falls below $1, additional Luna tokens are issued for which stablecoins are automatically exchanged until the price of Terra on increases $1. UST is not backed by real assets such as bonds. Instead, the nonprofit organization Luna Foundation Guard, led by Terra founder Do Kwon, holds about $3.5 billion worth of Bitcoin in reserve.
The troubles started on May 10 when one of the investors put up about $300 million worth of UST tokens for sale, causing a panic in the market. As a result, the price of Luna and UST collapsed. Following the UST, a number of other cryptocurrencies fell, including the world’s largest stablecoin, Tether, which fell below $1 ($0.99 per coin at the time of writing). The Bitcoin exchange rate fell below $27,000 per unit, but later the world’s most popular cryptocurrency managed to partially recover. At the moment, they spend around $30,300 on one bitcoin.