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For the first time in the history of cryptocurrencies, a token (LUNA) has faced a 100 percent crash within a month and then saw a steep recovery of over 100 percent over the weekend. Terra (LUNA) has tanked to merely a few decimal cents from its peak of US$118, wiping out 100 percent of the investors' wealth. Overall, the token has wiped out US$40 billion from their pockets. As a result of UST de-pegging, which crashed the LUNA market, LUNA investors mirrored the price dip as CoinGecko recorded a decline in trading volumes to US$178.6 million on May 13, a number that was last seen in February 2021.
In its support blog, WazirX said they are delisting the pairs of LUNA/USDT, LUNA/INR, LUNA/WRX. "We will enable Binance free transfer for users to withdraw their LUNA funds," it added. USDT is Tether, a stablecoin, and WRX is WazirX's utility token.
Stablecoins are tokens pegged to the value of a government-backed currency such as the US dollar or commodities like gold or silver. Tether (USDT) and USD Coin (USDC) are the two leading stablecoins. The value proposition of these tokens is that they largely trade around US$1 per token, which gives investors some security in highly volatile market situations.
TerraUSD, or UST, is different from Tether in that it is not backed by fiat currency or other commodities, but instead relies on a complex mix of code and a sister token called luna to stabilize its price. Terra is referred to as an algorithmic stablecoin, meaning that its value is not determined by the financial collateral in the traditional markets but by lines of complex computer code.
As investors try to recoup their losses while others attempt to cash in on Terra's comeback, the trading volume of Luna surged over 100% back up to US$6 billion. Before the crash the Luna ecosystem consistently required over US$2 billion in trading volumes on average over the past 2 years.
Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems. According to its white paper, Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC) and offers fast and affordable settlements.
Development on Terra began in January 2018, and its main net officially launched in April 2019. As of September 2021, it offers stablecoins pegged to the U.S. dollar, South Korean won, Mongolian tugrik and the International Monetary Fund's Special Drawing Rights basket of currencies — and it intends to roll out additional options.
Terra's native token, LUNA, is used to stabilize the price of the protocol's stablecoins. LUNA holders are also able to submit and vote on governance proposals, giving it the functionality of a governance token.
In the past, the algorithmic stablecoin TerraUSD maintained its US$1 price by relying on traders to take on an arbitrage function between the values of Terra and Luna. When Terra fell below the peg, traders would "burn" the stablecoin—removing it from circulation—by exchanging TerraUSD for US$1 worth of new units of Luna. That action reduced the supply of TerraUSD and raised its price.
Conversely, when TerraUSD's value rose above US$1, traders could burn Luna and create a new TerraUSD, thus increasing the supply of the stablecoin and lowering its price back toward US$1.
Do Kwon, a South Korean developer, created TerraUSD. The coin was launched in 2020 and prior to its collapse had swelled to a size of more than US$18 billion.
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