What Exactly Happened To LUNA Crypto?
The main points
According to estimates, the collapse of the Luna crypto network destroyed $60 billion worth of digital currency.
Stablecoins backed by digital assets housed in banks, such as Tether or USD Coin, are not the same as algorithmic stablecoins (UST).
Do Kwon, the co-founder of Terraform Labs, where the sister coins Luna and TerraUSD were kept, has been given an arrest order.
Exactly what is Luna crypto?
You may have heard about TerraUSD and Luna; to give you a quick overview of each, go here. The Luna network had a lot of moving elements before it collapsed.
Luna and TerraUSD, commonly referred to as UST, are sibling coins that operate on the same network.
How come LUNA crashed?
Due to its association with TerraUSD (UST), the Terra network's algorithmic stablecoin, the Luna cryptocurrency crashed.
On May 7, UST worth over $2 billion was unstaked (removed from the Anchor Protocol), and a large portion of it was rapidly liquidated. There is disagreement about whether this occurred in response to higher interest rates or if the Terra blockchain was the target of an intentional attack. The massive sell-offs reduced the price of UST from $1 to $0.91. As a result, merchants began exchanging $1 worth of Luna for 90 cents worth of UST.
The stablecoin began to depeg after a sizable amount of UST was offloaded. More people sold their UST in a panic, which increased the amount of Luna that was produced and circulated.
Cryptocurrency exchanges started to remove the Luna and UST pairs after this crash. In the end, Luna was discarded since it was no longer useful.
What happened following the Luna crash?
The entire cryptocurrency market, which was already quite volatile and having trouble at the time, was affected by the Luna crash. The Luna collapse is thought to have tanked the price of bitcoin and destroyed $300 billion worth of value throughout the whole cryptocurrency market.
Crypto industry pioneers Voyager and Celsius declared bankruptcy. Three Arrows Capital (3AC) was compelled to go out of business.
The Luna crypto crash caused a lot of people to lose their life savings and experience severe difficulty. Many of these horrible tales may be found online with a little search. Many devoted Luna supporters—referred to as "Lunatics"—took to Reddit forums to express their tragic tales. One novice cryptocurrency trader even acknowledged that they had lost their $20,000 savings in Luna.
Those that sold their positions prior to the crash were the only ones to profit. We must single out Pantera Capital, a hedge fund, as a winner. On a $1.7 million initial investment, they received a 100x return. Prior to the crash, the corporation sold its Luna holdings for a profit of $171 million.
The conclusion
If you plan to invest in cryptocurrencies and other highly volatile assets, you must acknowledge that there will be a significant amount of risk involved. Hopefully, this terrible Luna collapse is only a passing, black swan occurrence rather than the beginning of an age. The most important lesson to learn is that investments that look too good to be true generally are. Secondarily, it would be wise to keep these investments to 5–10% of one's portfolio for investors who are still long-term bulls on cryptocurrency.
Learn more: When Bitcoin Crash: Five Things to Do
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