Terra has unfortunately been the unintentional whistleblower that pointed out stablecoin flaws and questioned their real-world utility, but what happened for LUNA to drop from $85 to $0.00003465 in less than 10 days?
“These purchases resulted in an oversupply of UST, which started falling rapidly once sell pressure began to mount on LUNA and then subsequently on UST. Once this selling happened, the Luna Foundation Guard had to offload its Bitcoin to maintain the peg. But, the reflexive sell pressure continued and all of the involved assets began to drop hard.
“Once the Binance liquidity dried up, Curve’s two UST pools started selling UST, and Anchor’s borrowing levels declined by over $1 billion. As a result of this, the broader ecosystem has now been plagued with confidence issues, especially when it comes to stablecoins.
To this point, Terraform Labs’ official Twitter account revealed that all network activity had been stalled at block height 7,603,700. With LUNA’s value dropping by nearly 100%, the firm’s spokesperson suggested that developers are no longer confident in their abilities to prevent third-party governance hacks.
“The LUNA situation will, unfortunately, leave a bad taste in everyone’s mouth as this has caused a lot of great altcoins to lose tremendous value. But, a bigger more important aspect of this development is its timing. All this has happened at a time when there is a war raging in Eastern Europe, supply chains are being constrained globally, inflation and interest rates are rising.
Thus, it will be interesting to see how this story continues to unfold and what sort of repercussions this incident has on the development/evolution of the cryptocurrency market at large, especially as the traditional finance system also continues to be ravaged by a growing amount of adverse financial pressure.
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