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What happened to Terra Luna crypto?

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Terra was one of the world’s most valuable (and stable) digital currencies.

However, on Tuesday, May 10, 2022, a huge sell-off occurred as the value of the Terra “stablecoin” suddenly “unpegged” from the US dollar.

As a result, Terra’s value plunged from $US1 (where it was always meant to remain) to 60 US cents.

Terra crashed again on Wednesday, May 11, 2022 leading to its value being brought down to 20 US cents.

Terra’s crash was the equivalent of a crypto “bank run”, as people rushed to pull their money out.

image via: Blaze trends

What happened to Terra Luna crypto?

Terra (UST) is an “algorithmic” stablecoin — whose value is backed by a “sister” token called Luna, which is run on pre-programmed “smart contracts”.

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When Terra dips below $US1, it can be swapped for Luna tokens (at a small profit).

Theoretically, the swapping of Terra with Luna tokens is meant to keep the value of both stable.

But the problem was that these complex algorithms somehow managed to spectacularly fail at the same time.

Luna somehow crashed at the same time as UST, in what has been described by analysts as a “death spiral”.

Strangely, nobody knows who caused the price of Terra and Luna to crash.

However, many social media users are pointing fingers at the big US hedge funds and trading firms.

But BlackRock and Citadel Securities have issued statements denying any involvement in Terra’s crash.

“We don’t know if the momentum was created by collusion,” said Lisa Wade, the CEO of blockchain company DigitalX.

 

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