The Luna disaster raises questions about the future of cryptocurrencies

From May 9, the cryptocurrency market became confused when the value of two Terra tokens, Luna and UST free fallfrom a capitalization of more than 30 billion USD a week earlier to about 70 million USD and still falling. Stablecoins UST, which used to have a stable price of one USD, is now only 0.2 USD.

After the “crypto winter” more than four years ago, regulators and users gradually began to have a more positive view of cryptocurrencies. However, experts say that the Luna disaster is causing trust to erode.

Short term impact

Once priced at more than 100 USD, Luna once dropped to 0.0001 USD in the past week, which is a million times decrease. Simply put, if a person owned a million dollars worth of Luna before May, their net worth is now exactly one dollar. Similar to the UST, holders of this stablecoin also split five accounts, even though this is a price stable coin.

The collapse of Luna – a token that once stood in the list of the 20 largest cryptocurrencies in the world in terms of capitalization – made many people property loss overnight, do not understand what is happening, because they believe that a “top coin” cannot depreciate so quickly.

From being favored, Luna and UST were gradually restricted or removed from the trading list of most cryptocurrency exchanges. “This serious breakdown could drain investors’ confidence in the cryptocurrency market in the short-term,” the page said. Indian Express comment.

Besides, the plunge of Luna also affects the cryptocurrency market. Bitcoin from the previous mark of more than 34,000 USD per dong, decreased to 27,000 USD as of May 12 – the lowest level since December 2020. Meanwhile, many other tokens also dropped from 30% to more than 50%.

Stablecoins may be squeezed

According to Protocolafter the Luna incident, global regulators are expected to increasingly tighten cryptographic projects with stricter regulations in order to minimize damage to market participants.

Experts predict regulations will focus more on stablecoins after the UST crash. In fact, over the past time, regulators have focused more on cryptocurrencies that fluctuate in value than stablecoins – digital currencies developed on the Internet. blockchain and pegged to the value of fiat currencies like USD or Euro.

“This sudden drop is a reminder that the model behind most stablecoins is still highly experimental,” said Ronghui Gu, founder and CEO of blockchain security firm CertiK. The Verge. “In the world blockchain and Web3everything can be applied to stablecoins, but no solution is completely convincing yet.”

“Lessons from the UST will definitely fuel the push to regulate cryptocurrencies, especially stablecoins,” US Senator Pat Toomey said during a press conference May 11. “These are investments that sometimes offer great returns, but the risk of zero is also very high. So investors should always make sure they understand what they’re doing.”

Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), called on the US Congress to regulate the crypto assets. He once likened stablecoins to poker chips used at casinos instead of cash. “Cryptocurrencies like stablecoins are growing rapidly and there are risks to financial stability,” Gensler said.

Commenting on the development of Terra, US Secretary of the Treasury Janet Yellen mentioned above WSJ: “As it stands, this is a rapidly evolving product and there are risks to financial stability. We really need a consistent regulatory framework at the federal level.”

Even so, it is argued that the UST crisis is likely to bring “more wind to the sails” to promote a digital currency issued by the US central bank. “Stablecoins have proven a real market need,” said Alex Johnson, Head of Fintech Takes of Protocolidentify.

Bao Lam