Terra Luna

LUNA Coin Dropped 90 Percent, Apparently This Is The Cause

Previously, the native token of the Terra network, LUNA Coin, fell very deep on trading Thursday, May 12, 2022. The price of LUNA coin traded below USD 1.00 and even touched USD 0.64 its lowest price since September 2021. previously entered the ranks of the top 10 crypto assets dropped to number 40.

that the decline in LUNA’s price was greatly influenced by the peg factor or the reduced value of the Terra network’s native stablecoin, UST. The UST stablecoin fell as low as USD 0.70 in Thursday trade, briefly USD 0.30 and an all-time low.

The drop in LUNA coin prices occurred after the amount of UST managed by the Decentralized Finance platform, Anchor, fell from USD 14 billion to USD 8 billion.

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In addition, the decline in the value of bitcoin, which is a reserve asset of UST, is suspected to have contributed to the sharp decline in LUNA.

In short in the world of finance to remove a pre-set peg on a currency. For example, if Currency A is pegged to Currency B at a 1:1 ratio, but the developers for Currency A decide to leave it floating, that currency is said to be depegged from Currency B.

This incident made market participants worried and doubtful about the condition of the stablecoin market and the crypto market in general which is too volatile for now.

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These fears are growing after the US Treasury Secretary, Janet Yellen and the Fed said that stablecoins are a big risk that threatens the financial sector.

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Reporting from BusinessToday, Thursday (12/5/2022), the success of the Terra ecosystem is based on the adoption of UST as a Stablecoin, therefore the LUNA and UST tokens are closely related. LUNA invests in UST and loses money as demand for UST increases. After an upgrade like the Columbus-5, the supply of LUNA could become very deflationary in the long run.

The Columbus-5 Terra upgrade, which was implemented earlier this past fall, is responsible for the recent growth in UST supply. Columbus-5 started with the primary goal of simplifying Terra’s economic design and increasing LUNA holder value gain based on UST’s growth.

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The UST Curve pool gradually shrinks as users trade UST for competing Stablecoins as UST starts trading drastically below its dollar peg.

The price of LUNA, which is guaranteed by UST, fell due to short selling. To reduce the negative price pressure, Terra was forced to collect more LUNA. The UST level goes down and consequently, the LUNA value goes down, even though the pegs are not reattached.

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