Luna Crash Explained: Can Luna Ever Bounce Back

The past few days have seen Terra Luna take a nosedive, dropping by more than 99 per cent of its value. The token, which opened the month trading at $78, is currently trading at $0.00019, with today’s trading session showing a price decline of over five per cent. Today, there are still lingering questions about Luna and whether it will ever recover. Below is everything you need to know about the Luna crash.

Why did Luna Crash?

Luna crash was primarily caused by the de-pegging of the UST stablecoin. Both Luna and UST are native tokens of the Terra network, which is a blockchain-based project developed by Terra labs in South Korea.

UST stablecoin is pegged to the US dollar, which means that, at any given time, it is supposed to be worth a dollar. To maintain the ratio of 1:1, UST needs to be algorithmically stabilised. The process uses a smart contract-based algorithm to keep the price of UST anchored to $1 by burning Luna tokens in order to mint new UST tokens.

However, last week, the UST became de-pegged from the USD, partly due to concerns about the rising Federal Reserve interest rate. This resulted in faster burning of Luna tokens and an increased rate of minting of new UST tokens in order to stabilize it. In the process, more Luna coins were generated in a bid to recorrect the price drop of UST. Unfortunately, as the UST was de-pegging, the price of Luna was also spiralling down. The result from this spiralling was a 99 per cent price drop.

Steps being taken to address the current drop

Recent reports indicate that Luna Foundation guard has used over $3 billion in its attempt to revive the cryptocurrency. Terra creator Do Kwon had promised to use the money, which had been stored in the form of Bitcoin, to address any future de-pegging of the UST. As of today, reports indicate that out of the 80,000 bitcoins the company had accumulated over time, only 313 bitcoins had been left.

Today, steps to address the current fall of Luna seem to have failed. Plans such as forking the Luna project with a snapshot before the cryptocurrency started to fall by Luna developers has also been met with resistance. Therefore, as of now, the Luna project will highly likely never make a comeback. Investors of the project will, therefore, have to deal with their losses. The UST prices are also likely to continue trading below a dollar. Therefore, I do not foresee Terra ever making a comeback.