Crypto trading has become more and more popular in recent years, especially with the latest bull cycle of Bitcoin, which has undoubtedly had a positive effect on the crypto market. Namely, the are even more businesses and retail investors that want to invest in crypto, and an increasing number of cryptocurrencies are emerging on the market.
But, as the crypto market is decentralized and at the mercy of the market demand and supply, certain events, like Bitcoin’s bull run or crash, have a domino effect on the other cryptocurrencies on the market. In short, the crypto market is extremely volatile, and the latest Terra/Luna crash further proves this point.
In this article, we will look at the aftermath of the Terra/Luna crash and the future expectations for the crypto market.
Terra (Luna) Background
Terra (LUNA) and TerraUSD (UST) are stablecoins that were developed by Terraform Labs in 2018, led by Do Kwon. Do Kwon is the entrepreneur behind the Terra(LUNA), which were regarded as his greatest invention and were further hyped up on his social media accounts, where he amassed a substantial following and support by both institutional and retail investors.
The main goal with Tera (LUNA) was to introduce an algorithmic stablecoin in the crypto market that will maintain its price because the Terra miners will be instructed to burn Terra stablecoins when it loses its price point 1:1 peg to the dollar. In case Luna’s price increases, the TerraUSD (UST) will be burnt.
This was the solution to the price instability of cryptocurrencies in general, and it provided a guarantee that a system was in place that stabilized the growth of this particular cryptocurrency. That said, Terra (LUNA) is the first innovation of this kind when it comes to stablecoins, and it is a major reason why there were many organizations and retail investors that wanted to invest in Luna.
Actually, the popularity of Tera (Luna) means that it was easily accessible for trading on most trading platforms like decentralized exchanges, including Binance, Coinbase, Osmosis, Kraken, and others.
Decline and Recovery
The only downside of this kind of system is that it is more centralized compared to other blockchain networks, and actually, it has a single point of failure. Even with the support from investors and social media popularity, this has likely led to the subsequent crash, also known as the Luna massacre, when the price dropped from $120 to $0.20 in May 2022. It was an unprecedented decline by any standards by 99%, and it had a ripple effect on the crypto market. Actually, it was estimated that it resulted in approximately $500 billion in losses for the entire crypto market.
Not long after the crash, the founder of Luna announced a new version of the cryptocurrency Luna 2.0. Over 60% of previous Luna owners expressed their support for the development of Luna 2.0. The previous version, at its height, had a jaw-dropping supply of over $40 billion. However, the launch of Luna 2.0 didn’t have any evident success so far. It started off strong at around $19, but it declined to $4 in a period of a few hours.
Future Expectations
Whether Luna will achieve any success again largely depends on the support of its community and whether investors are still willing to invest in it. However, the unbelievable crash and the subsequent aftermath resulted in a bear cycle for many other cryptocurrencies as a lot of investors started to sell their crypto funds.
This, in turn, has motivated governments to reconsider regulations of stablecoins and the crypto market in general. In the future, we will expect more stablecoins to enter the market, and as evidently, there is keen interest in business as well as the public sector in stablecoins.
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