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In the past few days, the crypto world has been shaken up and has witnessed one of the worst crypto dips ever in the space of a few days. It all started with the Terra LUNA crash. In this article, I will be explaining everything that happened; why it did and what the future holds.
What are Terra USD (UST) and Terra LUNA?
Founded by Do Kwon, Luna (LUNA) and TerraUSD (UST) are two native tokens of the Terra network, a blockchain-based project developed by Terra Labs in South Korea.
The Terra blockchain is built on Cosmos SDK; a framework that allows developers to create custom blockchains and build their decentralized applications on top of Terra for various use cases.
TerraUSD and luna are known in crypto circles as stablecoins, which means their value is tied to a commodity or a currency. In this case, terra and luna have been pegged to the U.S. dollar, meaning every luna is supposed to be worth $1.
Why did LUNA crash?
Luna crashed due to its link to TerraUSD (UST), a stablecoin which was pegged to the US dollar.
Someone planned an attack by dumping 285 million in UST LUNA stablecoin in a particular pool. UST is a stablecoin and needs to maintain $1, but with this person’s dump, it depegged TerraUSD from $1 to $0.40.
UST has to go back to a dollar to stabilize but for this to happen, more LUNA needs to be mined into the markets. So, more LUNA mined into the markets increases the supply of LUNA but decreases the price.
With the decrease of the price of LUNA in the market, crypto investors saw this and started panicking and selling their UST, further decreasing the price.
The crash has left the crypto world rattled and has affected other crypto coins.
Why Did The LUNA Crash Affect Other Cryptocurrencies?
Just like other financial systems, the crypto market is entwined. As TerraUSD fell, it affected other cryptocurrencies. Tether dropped to $0.96 on Thursday, although it later rebounded to again match the value of the US dollar. As tether slid, bitcoin plunged to around $25,400 on Thursday, its lowest value since December 2020, before rallying to around $29,500 on Friday.
Overall, the entire crypto market has been slashed by more than half since November, falling to $1.2 trillion from $2.9 trillion, according to data from CoinMarketCap.
Will LUNA Recover?
Although this is a time of uncertainty in the crypto market, It seems like Luna might recover from this harsh fall.
Do Kwon, the creator of TerraUSD and Terra Luna, on Wednesday outlined a rescue plan to address the crash.
“I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this,” he wrote on Twitter.
Getting into crypto, you were probably familiar with the volatility of the market so although this crash caused millions of losses for lots of people, it might not also come as a shock to some people.
You can decide to hang tight and HODL or if you wish to sell your crypto, convert to your fiat currency and withdraw straight to your local bank account in Nigeria or Ghana, I recommend you use BREET.
Breet is an OTC crypto trading app that allows users to receive crypto, convert it to cash and withdraw it to their local bank account within minutes.
It supports cryptocurrencies such as; Bitcoin, Ethereum, Litecoin Dogecoin and Bitcoin Cash.
Breet is available in both Nigeria and Ghana at the moment.