Terra falls from the Luna
Future. The money-generating token algorithm behind Luna and Terra has come crashing down, wiping out people’s investments and sending the entire crypto industry in a tailspin. While the technology behind crypto is still a financial and governance gamechanger, the era of speculative investing may be coming to a close.
Back to earth
A drama surrounding the cryptocurrency Luna and the stablecoin Terra shows how volatile the crypto industry is.
- Luna is (nay, was) one of the biggest cryptocurrencies in the market, competing in the same speculative space as Bitcoin, Ethereum, and Solana.
- Terra is a “stablecoin” — a coin tied to an existing asset so it can be more… stable — tied to Luna so that holders could always trade one Terra to the tune of whatever is $1 worth in Luna.
According to The Information, the two tokens are “supposed to act as a balancing mechanism for each other, by which one is automatically created or destroyed based on the supply and demand of the other.” And with Terra giving investors an annual interest return of 18-20% (much of it tied to the price of Bitcoin), it incentivized traders to pour a lot of money into the coins and trade between them to turn a profit.
But then the hammer dropped: amid the larger crypto crash, Luna lost 99% of its value, which sent Terra spiraling to $0.29. More than $40 billion in wealth was erased in “a matter of hours.” People lost a lot more than their shirts… so, yeah, not so stable. In response, several exchanges delisted both tokens.
Is winter coming?
While analysts call the fall of Luna and Terra an inevitable consequence of a clear Ponzi scheme, the fallout is a microcosm of the crypto’s terrible, horrible, no good, very bad week.
- Coinbase — the largest exchange — lost half of its value.
- The whole market lost $1 trillion in value in just the past month.
And it may only get worse — some analysts expect some major tokens to lose 80% of their value by the time the shakeup is over.