Cryptocurrencies are not a stable asset, no matter how much specialists call a small group stablecoins, and the case of LUNA is the best example of this.
The time has come, cryptocurrencies have begun to break the hearts of those who had bet on them. Yes, that bright future they promised seems to have turned into a black hole staring back at them from the abyss. What has happened? Too much and we are going to see everything carefully.
Over the past few weeks, cryptocurrency trends have not lived up to expectations. In fact, millions of users had begun to post on networks like Twitter or Reddit that the situation would start to get complicated in the coming days. So it has been and now the situation is the worst imaginable.
And, it is that, It must be understood that in the world of cryptocurrencies there are many variables and not all electronic currencies have the same impact or value. There are the shitcoins that are, so to speak, new currencies and that have almost no importance except for the fact that they are funny.
The ones that rule the roost are the stablecoins and, among them, they also have categories according to their value or the framework behind them designed to sustain price fluctuations. What no one expects is that the real world affects their big little bubble of virtual money where everything is always on the rise.
You could say that the indirect culprit has been the United States or, rather, the economic situation that the country is going through due to inflation and the rise in different interest rates. In the real world this has already had an impact, the stock market has also plummeted in recent days.
After this little context we go to what concerns us, the fall from grace of LUNA and UST. The first being a stablecoin that was born from Terra, this being an ecosystem that is based on blockchains and whose mission is to issue stablecoins. Come on, it doesn’t have any kind of logic; although lovers of these virtual currencies believe so.
And, in fact, Terra has its own token, which is the one that serves as a guarantee for the rest of the currencies.. But that, at the same time, it is a cryptocurrency with which you can operate and that, logically, is also affected by any type of external situation such as what is happening in the United States.
Taking all this into account, we are dealing with a platform, Terra, that dispenses stablecoins and has its own, UST, which can be affected by inflation since these, in theory, they must have an equivalence to the real value of a currency to which they are associated and which in this case is the dollar.
Where does MOON come in? This, misnamed, stablecoin it is a token that serves as a promise so that investors can play with cryptocurrencies. The operation is as follows. If, for example, you have 10 UST and LUNA has a value of 5 euros; you would get 2 LUNA which you could then sell to get 10 euros.
What the hell is that UST de-peg thing? If you don’t understand anything and the MOON confuses you, keep reading 👇 pic.twitter.com/6Hc2axWgHF
– Fernando Gutierrez (@fernando) May 10, 2022
Go, that when you want UST you have to use LUNA and if you want to get your money back you also have to use this system. In addition, when the MOON changes, it is destroyed and, therefore, supply and demand situations are generated. What has happened is that Terra introduced changes such as the fact that a part of LUNA was not destroyed.
And why isn’t it destroyed now? Because the company saves these funds to buy bitcoin. Causing a vicious circle to begin due to what was mentioned at the beginning of these lines. Taking hold of bitcoin and encountering declines in the market, the price of LUNA was recorded at roughly the same level as the price of UST.
After this it began to go down and, of course, the equivalence and conversion no longer made any sense. In addition, the fact of millionaire withdrawals during these weeks and a falling market made the pressure on LUNA even greater so that the fund that stored the purchased bitcoin began to sell.
The sale that was generated was to have assets for the purchase of LUNA and make it once again have a real equivalence with UST, in order to maintain the fact that this currency is close to the US dollar. But this was not possible, bitcoin continued to crash and therefore the selling price failed to be enough for a monster purchase of LUNA.
The Terra blockchain has resumed block production. Validators have decided to disable on-chain swaps, and IBC channels are now closed. Users are encouraged to bridge off-chain assets, such as bETH, to their native chains. Note: Wormhole bridge is currently unavailable.
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 13, 2022
So we find that bitcoin is rock bottom, LUNA is below UST, and Terra doesn’t know what to do because everything is in free fall. Faced with such a situation, the reaction of this company was to completely paralyze its entire network, causing the different transfers of this currency to be cancelled..
Specialists in cryptocurrencies have branded this situation as one of the most striking in recent years and, in the end, it turns out that virtual currencies are not as stable as believed due to the many contingency networks they had. We only have one sentence that can sum up this whole situation and that is: “It’s the market, friend!”