How Terra Luna Collapsed… What We Know So Far
The Terra (LUNA) crash was a major event in the world of cryptocurrency. The coin lost 96% of its value in one day (May 12), pushing it to less than 10 cents.
It is worth noting that Luna is a stablecoin that uses an algorithm to maintain its stability. The algorithm monitors the price of the US dollar, then buys and sells it in order to keep its value at one unit per coin.
The issue was that the coin depegged from the US dollar, no longer holding a one to one ratio causing investors to panic and pull their money out. Consequently, the price plummeted.
There are plenty of theories about what initiated the collapse of Luna, and most of the answers seem to be merely speculation.
Some say that it could’ve been due to a bug in their system or that there were not enough people using Terra, leading to low liquidity and high risk for investors. Others say that it could have been because of an error in their pricing model or because they were unable to find a way to generate revenue outside of trading on exchanges. While others have accused Terraform Labs, the company behind Luna, of operating a Ponzi scheme.
What is known for sure is that many investors were left holding the bag.
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