LUNA’s downfall was caused by an “evil plan”
Cryptocurrency investors just witnessed one of the worst “black swans” in history as $200 billion in market capitalization evaporated following the complete collapse of a major coin.
On Tuesday (May 10) last week, the 7th largest cryptocurrency by market capitalization Terra (LUNA) collapsed to near zero, dragging down the dominoes of the entire crypto market. The social network is completely disordered in conspiracy theories about the crash, while unlucky investors keep updating about their losses on Twitter and Reddit.
After the LUNA free fall, Bitcoin (BTC) also broke through $25,500 for the first time since December 2020. The situation was made worse by the market’s downtrend in the “real” economy. ” as investors sell off speculative assets like tech and emerging stocks.
The collapse of the Terra ecosystem is one of the worst disasters in the crypto industry.
So how did a cryptocurrency with a total capitalization of more than 30 billion USD evaporate in just a few days? According to some experts, an “evil genius” is behind this mystery.
LUNA is the digital currency tied to the stablecoin TerraUSD (UST). A stablecoin is a digital asset whose price is “pegged” to a real asset, usually the USD.
While most other stablecoins like Tether (USDT) and USD Coin (USDC) are backed by physical reserves, TerraUSD is a purely algorithmic stablecoin. When the price of UST falls to 1 USD, it can be exchanged for LUNA token with a small profit using smart contract.
In theory, this is meant to keep UST pegged to the USD while continuously bullish for LUNA.
Unfortunately, something (or someone) caused the smart contracts to malfunction, creating a “death loop” where TerraUSD lost its anchor so strongly that investors sold off LUNA instead of LUNA. trying to stabilize the price of TerraUSD, sending both assets in free fall.
While no one knows exactly what caused the Terra ecosystem to evaporate, Lisa Wade, CEO of blockchain finance company DigitalX told ABC news agency that she sees the incident as a conspiracy theory.
“It feels like an evil genius plan, since there are so many steps to it“.
CEO Lisa Wade.
According to Wade, to execute this plan, it appears that a group of traders bought around 1 billion UST and simultaneously sold Bitcoin short.
Then, they waited until Saturday night when the trading volume was very low (to make it easy to manipulate) and began to “discharge” mass UST, causing massive sell orders to take place, causing the UST coin to be de-anchored from the USD. .
LUNA is affected as it is collateral of the UST. If UST is bought in, LUNA will be “burned” to reduce supply and increase price. However, when the market is on low volume and there are no buyers, the price will go down and the reverse effect takes place, causing investors to panic, continuing to sell LUNA.
While this group of people made a fortune thanks to the above plan, tens of thousands of other investors suffered terrible losses. According to Wade, while this behavior is not technically illegal, its morality needs to be questioned.
According to the CEO, the consequences for the cryptocurrency market are not good and will lead to the regulation of this industry being taken more seriously around the world.
Source: Dmarge
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