The cryptocurrency market over the past few days has been anything but bullish. Almost all cryptocurrencies recorded losses of more than ten percent. The market has recovered somewhat since Thursday afternoon, but Bitcoin continues to struggle at the $30,000 level.
However, there was no happy ending for the cryptocurrency Terra Luna. I would argue that last week's scandal is among the biggest in cryptocurrency history, leaving investors with extreme losses.
Terra had a stablecoin called UST that is algorithmically coupled and should therefore hold the $1 level. Other stablecoins like USDT (Tether) are physically backed by cash, which derives some degree of stability.
This week it was time. The UST house of cards collapsed. Experts have been criticizing the use of a pseudo coupling for months. Investors who have been staking the Terra stablecoin UST have seen their saved (supposedly safe) money plummet by nearly 90 percent.
You have to imagine that first. We're not talking about a cryptocurrency that's volatile in a crash. No, we're talking about a “stablecoin” that should always be tied to $1. Investors had great confidence in UST for months and through the interest that investors got, they started to invest more and more capital. Unfortunately you read on some forums that people have mortgaged their house in UST.
But that is not enough. Terra's cryptocurrency -Luna- has seen losses of 99 percent for days, falling to a fraction of a cent from $110 in April. But why was Luna so affected by the UST crash? On the one hand, the trust of the community crumbled and on the other hand, an action follows that cannot be surpassed in terms of audacity.
Not only had the Terra team halted the “decentralized” blockchain for the past week, they also printed billions of new LUNA coins to raise fresh capital to “save” the Terra UST. The balance of Luna Coins before the fiasco and in the days after can be seen below.
The Terra Team nearly "destroyed" Luna due to the "rescue operation". This extreme surplus of coins even led to stock exchanges restricting trading with Luna or even delisting it completely to protect investors.
Terra founder speaks up
Do Kwon, creator of defunct cryptocurrencies TerraUSD and LUNA, is now the subject of criticism and investigation after his venture's failure sparked a major market-wide disaster this week.
The founder is known for his active social media presence, yet he's been uncharacteristically quiet in recent days as the network heads for disaster.
Kwon stated that he has spent the last few days calling various community members to let them know that the tokens have lost all value. By his own admission, Do Kwon is devastated, he said:
"I'm heartbroken by the pain my innovation has caused you all," he said, adding that he's spent much of his time on the phone with people who are "devastated that UST has been broken."
Kwon made the comments hours after he suggested on a Terra discussion board that the network be restarted by distributing 1 billion tokens to affected holders and users.
The simultaneous collapse of the algorithmic stablecoins UST and LUNA resulted in significant losses for market participants. TerraUSD traded as low as 15 cents amid frenzied selling. This triggered a broader crash that took the largest cryptocurrency, Bitcoin, to its lowest levels since 2020.
Burglary & Police Protection
On Friday, MoneyToday reported that an unknown person broke into the apartment complex where Do Kwon's wife is staying. After Kwon's wife answered the door, the person reportedly asked who the company's founder was before leaving the scene. After the burglary, authorities in Seoul's Seongdong-gu district informed Forkast that Kwon's wife was immediately placed under security protection.
How is it going now?
That is probably the question that occupies every Terra investor. While Do Kwon has discussed some “proposed fixes” via Twitter, actions so far, such as printing billions of coins, have already turned out to be a dead end. It is unlikely that Luna can recover after this scandal. We look forward to further developments and will report as soon as there are any new developments.
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