Why Terra Luna Fell? 5 Things You Need To Know
TerraUSD and its sibling cryptocurrency Luna have fallen roughly 98% in the previous few days, shaking the entire crypto market, including cryptocurrencies like Bitcoin and Ethereum. Terra Luna is nearly worthless now. This has caused investors to become fearful, and even the most aggressively bullish crypto investors are suddenly panicking. Here are the top five things you should know about the Luna crypto falls.
Luna and Terra Stablecoin
A stablecoin is a cryptocurrency whose price is fixed to the US dollar or the Euro, implying that it is less volatile than other cryptocurrencies such as Bitcoin or Ethereum, which are more volatile and prone to a sharp increase or decrease.
When investors want to make a fair profit while avoiding the regular volatility associated with cryptocurrency, they turn to stablecoins. Tether and USD Coin are two popular stable coins. Any stablecoin pegged to the US dollar should ideally maintain its $1 per token value; however, this was not the case in the Luna-Terra catastrophe. TerraUSD is an algorithmically developed stablecoin that uses a sophisticated method with a related sister cryptocurrency named Luna to keep the same value as USD.
It’s worth noting that the developers of Luna and Terra are the same. To stabilise the price, the Luna supply pool adds and subtracts from Terra’s supply pool. Users then burn (sell) Luna to mint Terra and even Terra to mint Luna. All of this is accomplished by a blockchain-developed algorithmic module. For example, if the price of a Terra currency drops to $0.80, and you can swap $1 the worth of Terra for $1 Luna, intelligent investors can immediately make a 20% profit by burning their TerraUSD.
Balancing act
Terra and Luna’s entire concept is centred on supply and demand. This balancing was required for investors to register minor cuts but stable profits. However, the balancing act between TerraUSD and Luna broke down last week. Terra was mainly held together by something known as Anchor Protocol. Consider the Anchor Protocol to be your savings account. Every Terra holder received a 20% interest payment for depositing their token in the Anchor protocol. People have received 20 per cent fixed interest from Anchor accounts for several months. Almost 75% of the total Terra circulation was put in Anchor, according to Coindesk.
However, vast quantities of TerraUSD were abruptly withdrawn from Anchor over the weekend. Based on a rumour, Terra was switching from a fixed rate of 20% interest to a variable one. Investors became concerned, and they began selling Terra tokens and exchanging them for other stable coins. People have been swapping TerraUSD for Luna in large numbers. Luna’s supply eventually increased, and its price dropped. The balancing process broke down as more people dumped the Terra coin, and both the Terra and Luna coins crashed. The Terra coin price plunged to a stunning 0.225 on May 11, according to Coinmarketcap, suggesting that what was supposed to be a stable coin lost about 80% of its value in just a few days.
Crypto Crash
Fear is the primary driver of negative sentiment in the cryptocurrency market. As Terra collapsed, crypto investors panicked and began selling other coins, causing the market to fall. On Thursday, the world’s largest cryptocurrency, Bitcoin, fell to $25,400. However, it has shown only sporadic signs of stability since then. The whole crypto sector now has a market capitalization of $1.2 trillion, down from $2.9 trillion in November 2021, according to Coinmarketcap.
Terra Blockchain Halts
After Terra’s price dropped, the Terra blockchain was suspended for nearly nine hours. No new blocks were generated on the blockchain network during the pause. Terra token holders couldn’t move their assets until the blockchain was unfrozen. “After substantial $LUNA inflation and a significantly reduced cost of attack, Terra validators have opted to pause the Terra chain to avoid governance attacks,” the business tweeted.
Bitcoin Reserves
Following Terra’s price drop, a report from blockchain firm Elliptic revealed that at least $3.5 billion in Bitcoin was untraceable. According to Bloomberg, the Terra blockchain developers established the Luna Foundation Guard (LFG) to buy $3.5 billion in Bitcoin to buy Terra and maintain the one-to-one peg with the dollar. However, according to the article, the funds have already been exhausted. On May 9, two transactions totalling $1.7 billion were transmitted from LFG wallets to a new address. The entire sum was transferred to a Gemini crypto exchange in hours.
Why BuyUcoin Not Delisted Terra LUNA?
BuyUcoin doesn’t want to lose hope with this drastic drop in the price and believes that LUNA will recover to some extent in the upcoming month. Here are some sole reasons why BuyUcoin stands with LUNA:
- Terra is an open-source blockchain protocol that serves as the foundation for algorithmic stablecoins and a network of financial apps.
- Terra stablecoins are used to track the price of fiat currencies such as the US dollar and euro, while Luna is used for blockchain governance.
- The Terra protocol keeps the Terra stablecoin’s price stable by constantly balancing supply and demand. This is accomplished by employing Luna as the Terra stablecoin’s variable counterbalance.
As many ongoing projects are running on their platform, the LUNA community is working on a recovery plan, and we will see the effect in the upcoming months.
LUNA Recovery Plan – 4 Major Process
- Tokenomics 2.0
According to Kwon, Terra’s community must reconstruct the chain, and validators should reset the network to 1 billion tokens, which will be distributed as follows:
Former Terra Luna holders whose currencies have significantly depreciated shall receive 400 million token units.
TerraUSD holders should receive 400 million units in proportion.
The remaining 200 million units should be split evenly between the community pool, used to fund future projects and those who bought Terra Luna at the last minute to save it.
2. The new rate of inflation
Kwon advised the community to “incentivize its security with a realistic inflation rate, say 7%,” because income would no longer be enough to cover the cost of protection without swap fees.
3. Network ownership is shared
According to the creator of stablecoins, who feels TerraUSD holders should be reimbursed, stablecoin holders must own a significant portion of the network because they were the network’s debt holders.
4. The demand for network loyalty is urgent
Apart from that, he stated that for Terra’s ecosystem to continue to generate value, token holders from before the attack must remain. Finally, he emphasized that just because TerraUSD was not as successful as the community had hoped does not rule out the possibility of a future relaunch.
How to Buy Terra LUNA in India?
Step-by-Step Guide to buy Terra LUNA in India
Step 1 — Open a Digital Wallet
A digital wallet is where you hold your cryptocurrencies and interact with others via blockchain technology. There are many providers of digital wallets, however, it is important to do deep research before you decide which one is the best for you. Currently, the most popular digital wallet provider is BuyUcoin.
Step 2 — Register & Open an Account
Once you enter buyucoin/signup, register and open an account that can provide you with their service. Select the type of your account either individual or corporate. Select your country and agree to the terms and conditions to register your account for crypto trading.
Step 3 — KYC
KYC and AML are mandatory for Indian jurisdiction. Your data is saved and encrypted and is stored in Indian data centres only. You will be redirected to a different URL to complete your KYC. Please be ready with your recent selfie. You will need the images of your pan card. You will need the mobile number with you which is linked with your Aadhar.
Step 4 — Google 2 Step Verification
To use 2FA you will have to install an Authenticator app on your smartphone or tablet. Once enabled you will be asked to provide an additional six-digit one-time password along with your email and password every time you log in to your BuyUcoin account. This works only when signing in with an email and password. When using Facebook or LinkedIn you can enable 2FA with your social media provider settings.
Step 5– Add Bank details
Add the credentials of your bank name, holder account name followed by account number, and IFSC code details.
Step 6– Choose Terra LUNA to Trade At last, choose LUNA from the options and trade hassle-free.
Source for original Article – https://dailynewsmall.com/why-terra-luna-fell-5-things-you-need-to-know/
Read more: https://blog.buyucoin.com/daily-crypto-news/why-terra-luna-fell-5-things-to-know/
Text source: BuyUcoin Blog
