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[June Week 1] PEN TALK

📌 Today’s Topic: Analysis of Terra Luna Crypto Crash

Terra 2.0 (LUNA 2.0), which caused the collapse of the cryptocurrency market with many problems, finished its airdrop successfully on the 27th May (754,4910th block). The airdrop has been distributed according to the LUNA 2.0 airdrop ratio announced by Terra Station on May 25th.

I would like to discuss the meaning of the Luna’s relaunch through the weekly issues regarding the Terra Station and the collapse of the LUNA that started on May 8.

Image Credit: Terra Station

How to maintain the value of Terra

First of all, we need to figure out how the ‘UST’ and ‘LUNA’ operated within the Terra ecosystem. The UST coin, which used to mirror US dollars’s value on the Terra ecosystem, adopts an algorithmic stablecoin method that maintains its price through pegging with LUNA, a cryptocurrency whose value fluctuates in a wide range without holding actual reserve funds. By adopting this method, Terra has been criticized for its risks and limitations in existing algorithmic stablecoins. So, Luna Foundation Guard (LFG) announced that the company would buy more than $100 million worth of Bitcoin as a stabilizer, and the LFG in fact held more than 80,000 Bitcoins, ranking 7th in the Bitcoin network(as of May 5). The company intends to maintain its value as a safe-asset by increasing the number of Bitcoin that the company held.

However, despite these safety precautions, LUNA still had several problems that may arise.

Financial services on Terra’s ecosystem

Image Credit : COINSUTRA

Anchor and Mirror Protocols are the main services that may have problems.

According to CoinDesk, Mirror Protocol, which is one of the DeFi services that operated as the main service of the Terra ecosystem, caused a rapid drop in UST price, and 2 million dollars of funds were leaked due to a system failure.

The Anchor Protocol guaranteed a high yield of 19.4% per annum when depositing the UST coin in the platform. Some experts believe that this profit structure, which far exceeds commercial banks’ profits, is the main reason for the price crash of the ecosystem in the Terra platform. The experts have also pointed out that it is illegal to explain that interest is paid when depositing LUNA on the platform. Some experts continuously tried to explain the risks of the Luna platform and the price crash actually began with the massive UST dumping On May 8th,

In order to provide services such as those provided by commercial banks within the system, legal system improvement needs to be addressed and permission from the government must be obtained. Considering the problems that have arisen in a series of major services, it seems that there are many difficulties and limitations in providing financial services in general companies. It remains to be seen how these issues will be resolved in the future.

Damage status

It is estimated that about $47 billions have been evaporated from the cryptocurrency market due to the ‘Tera-Luna crash’, and it is known that more than 280,000 users have been affected in South Korea alone. As a result, some Korean investors have sued Terraform Labs co-founders, CEO Do Kwon and former CEO Shin Hyunseung, on fraud charges. The investors’ legal representatives commented that the second and third lawsuits would continue.

Vote to revive LUNA & Relaunch

Image Credit : Terra Station

In order to compensate these investors for the damage, CEO Do Kwon announced the LUNA revival plan along with a pre-voting on May 17th. In the pre-voting, more than 90% of 805 investors voted against. However, in the governance vote, it succeeded in reissuing LUNA by winning a total of 65.5% of the votes in favor on the 26th. The main goal of this proposal is to build a new blockchain, ‘Terra 2.0,’ beyond the existing Terra blockchain, and to issue the new LUNA.

CEO Kwon’s Re-challenge

According to CoinDesk Korea on Thursday (June 2), it was reported that CEO Do Kwon abandoned the algorithmic stablecoin that was operated based on the smart contract algorithm without collateral and was planning to issue a new stablecoin. The new stablecoin is a pure collateral stablecoin by depositing collateral and issuing a stablecoin corresponding to its value through a smart contract.

Currently, ‘DAI’ is a representative collateralized stablecoin, and ‘USDC’ issued by Circle and ‘USDT’ issued by Tether are the main centralized stablecoins. Currently, the ranking of stablecoins is in the order of USDT, USDC, BUSD, and DAI, with centralized stablecoins still leading the way.

Terra(LUNA)’s current status

Based on CoinMarketGap, the newly issued LUNA once recorded a price of $19.53, but plunged to $3.93 in less than 5 hours, and is currently trading at $6.39 (as of June 2). (About $800 million in trading volume in 24 hours)

Based on CoinMarketGap, the newly issued LUNA once recorded a price of $19.53, but plunged to $3.93 in less than 5 hours, and is currently trading at $6.39 (as of June 2). (About $800 million in trading volume in 24 hours)

After the airdrop, 18 major global exchanges such as Binance, Huobi, and Kucoin started to support trading (as of May 31). In addition, Binance and Huobi Global support both LUNA and LUNAC. Korea’s major exchanges, such as Upbit, have conducted airdrops to protect investors, but they have drawn the line that this does not mean ‘listing’, a transaction support. As a result, LUNA can no longer be traded on major exchanges in Korea.

To sum up

The ‘Terra-Luna Crash’ is having a negative impact not only on the cryptocurrency market but also on the real economy. It is unclear how much damage CEO Kwon’s Terra revival project will help in recovering from damage. We hope that this situation will be resolved as soon as possible, not only for the investors who have suffered, but also for a quick economic recovery.

|Reference|

Do Kwon, proposed another stablecoin (CoinDesk Korea)

New LUNA listed on Global exchanges (CoinDesk Korea)

Terra’s New Luna Token Surges 40% After Listing on Binance (CoinDesk)

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