What happened to Terra LUNA? UST depeg, Terra LUNA collapse (Anchor Protocol) | Crypto News Today

In what some are calling the largest crypto
meltdown of all time, the Terra LUNA stablecoin project has gone from a top 10 cryptocurrency
to all-but-worthless in just a few days. In this week’s video we’ll explain what
went wrong, how it happened and why Terra’s failure is hitting the crypto markets hard. I’m your host Kris Merkel and this is Exodus
Crypto News. A week ago Terra had a market cap of $29 billion
and UST a market cap of $18 billion. Together the two coins had a combined market
cap of $47 billion, making them massive projects by anyone’s standards. With all of that capital locked up, Terra
didn’t just randomly blow up one afternoon. Sophisticated and well-funded traders took
down the project by pushing on its greatest weakness: a lack of collateralization. Here’s what happened. To create the UST stablecoin an investor has
to buy the LUNA token and burn it. Over time this reduces the supply of LUNA
and drives the token’s price up. Conversely, to get a redemption a trader can
burn UST and mint a corresponding amount of LUNA.

On May 7th the attackers swapped $85 million
worth of UST into USDC on the decentralized exchange Curve. The attacker, or attackers, then continued
to swap tens of millions of dollars worth of USDC, putting constant downward pressure
on the price of UST. Initially the peg held around $0.98, and for
a few hours it seemed like everything was going to be fine. As the attack continued, however, sentiment
turned negative. Investors withdrew several billion dollars
worth of UST from Anchor and began to redeem their tokens for LUNA. This pushed LUNA’s price down, leading to
more instability.

The further that UST depegged from the dollar,
the more investors redeemed their stablecoins and exited the Terra ecosystem. Ongoing redemptions eventually led to Terra’s
demise, marked most obviously by the point at which the market cap of LUNA dipped below
the market cap of UST. Once that happened it became clear that not
everyone would be able to redeem their UST, putting an end to any illusions of Terra’s
recovery. As of the recording of this video LUNA has
a circulating supply of about 7 trillion tokens, and that number is continually increasing. Just prior to the attack LUNA had a circulating
supply of a scant 350 million tokens. LUNA is trading at a fraction of a penny,
effectively a total loss for anyone still holding the token.

What are the broader implications for the
cryptocurrency ecosystem? Well, Terra had about $1.8 billion worth of
BTC which they sold in a failed attempt to defend the peg. That at least partially explains the large
dip we just experienced in the markets. Looking to the future, it’s likely that
this cataclysmic blowup is going to attract the attention of regulators. Janet Yellen has already mentioned Terra’s
meltdown and the SEC will probably release a statement soon as well. Is there any chance that Terra can recover? It’s very unlikely. The project depended on the trust that people
put into it, and that trust is gone now. It’s a sad time for the blockchain community
and we are truly sorry for anyone who lost money in this unprecedented meltdown.

How did the Terra crash affect you? Thanks for watching everyone! We got a lot more videos for you so just click
any of these to keep watching. Until next time, hodl on.