Why is Terra Luna falling? What is the relationship between Luna and UST?
0Why is Terra Luna falling? What is the relationship between Luna and UST?
Terra (LUNA) has settled on top of the cryptocurrencies that lost the most in the last drop. While the markets have lost 30 percent in the last week, this loss was 99.8 percent in LUNA. In other words, the current value of the coin in the hands of an investor who had a $100 LUNA a week ago is only 20 cents. So "Why did LUNA crash, how does this drop relate to the stablecoin project UST, and finally, can LUNA return to its previous levels?" We sought answers to your questions.
Cryptocurrency markets are declining rapidly due to the tightening policies of the US central bank Fed. However, the fall of Terra's cryptocurrency LUNA will be remembered for many years in the cryptocurrency markets.
LUNA, which stood at $120 just a month ago, was trading at $85 a week ago.
As of 10:00 on 12 May, the value of Terra has decreased to 18 cents. So LUNA has lost almost 99 percent of its value. The crypto lost 99.8 percent compared to its highest value.
NO SIGNS OF RECOVERY
The fall of LUNA will be a lesson for both crypto tech enthusiasts and investors for a long time. The coin is still falling and there are no signs that the project will recover anytime soon.
WHY IS TERRA LUNA FALLING?
To explain the depreciation of LUNA, it is necessary to understand the working logic of its biggest project, UST (Terra USD). UST is a stablecoin token equivalent to $1. When crypto investors want to switch to US dollars on the blockchain, they use tokens such as USDT, USDC, BUSD. The main task of these projects is to keep the tokens stable at $1. Due to the fluctuation experienced from time to time, the value of cryptos can change by 2%.
It is possible to see these exchange rates in other stablecoins along with Terra USD. These projects automatically adjust the cash flow in case of depreciation, bringing the value of stablecoins back to $1.
When Terra's UST project dropped to 98 cents, the system tried to increase the stablecoin's value to $1 by automatically selling Bitcoin. However, with Bitcoin falling rapidly at the same time, LUNA had zero reserves to support UST. Thus, the UST decreased to 65 cents.
Seeing the decline in UST, the investor started selling their USTs. For every UST sold, the system automatically generated one LUNA coin. This caused the LUNA supply to skyrocket. At the same time, the loss of value in LUNA accelerated as the reliability of the project was shaken.
To put it in numbers, just before the fall, there were 377 million 576 thousand 651 LUNA coins on the market. One LUNA was issued for every UST sold. The number of LUNA in the markets suddenly increased to 1 billion 461 million. Currently, there are more than 3 billion 250 million LUNAs. In other words, the number of coins in the market has increased 10 times in less than 48 hours. LUNA's depreciation exceeded 99 percent as the project lost confidence and could not find the cash needed for UST.
HOW WILL LUNA'S FUTURE BE?
The project, whose value was reset in a few days, sunk many crypto investors along with itself. The future of the LUNA project is a matter of curiosity for many investors. It is not possible to say anything definite about this. LUNA needs to pull the UST back to $1 to recover. For this, a large amount of external resource transfer is needed. If the Terra project can fix the UST to $1 again, it could cut its losses. On the other hand, if the UST remains at its current values, it means that the bad days are not over for Terra LUNA.