In the currency circle experiencing a new round of cold winter, another popular currency collapsed simultaneously. Luna coin, once called "Maotai" by coin circle players, was bloodwashed recently. This cryptocurrency, which soared from the lowest point of US $0.12 to US $119.5 and once ranked the fifth in the circulation market value of the whole network, ushered in a sharp decline in the popularity of the market.
On May 10, after bitcoin and Ethereum suffered another 10% fall, they struggled to stop the downward trend and slowly recovered. The overall market value of cryptocurrency across the network has also further shrunk. In a downturn, Luna coins, which plummeted by 45%, received widespread attention, and the entry "Luna coins plummeted" also appeared on the hot search lists of many platforms.
The reporter of Beijing business daily noted that during the relevant discussion, some netizens commented that they bought 1200 Luna coins at a low level on May 11 and planned to hold them for a long time, waiting for their value to rise. On May 11, Luna currency opened at US $31.4, with the lowest price down to US $3.6. As of 18:00 on the same day, Luna currency was reported at US $3.72, a decrease of 87.62% during the day.
This also means that if the above netizen really bought 1200 Luna coins according to his comments, even if calculated according to the lowest price of Luna coins of $24 on May 10, the netizen will still face high losses on May 11, and the amount of assets will fall by 85%.
According to the data of coingecko, the global currency price website, Luna currency was traded online in May 2019, and the initial transaction price was US $2.42. After the launch, Luna currency went all the way down. The currency price has been less than US $0.5 for a long time, and the historical lowest price is only US $0.12. Until the beginning of 2021, the cryptocurrency market as a whole was booming, and Luna currency also rose all the way, with an increase of more than 800% in 2021.
In April 2022, Luna coins hit a record high of US $119.18, and its circulation market value ranked fifth in the whole network for a time. Labels such as "currency circle Maotai" kept it hot. Just after Luna currency hit the highest price in history, the cryptocurrency market cooled significantly, bitcoin turned down, and Luna currency was also facing collapse.
In just two trading days, Luna currency fell from nearly $60 to $4. For the reasons for this situation, Jiang Zhaosheng, a senior researcher at the Ouke cloud Chain Research Institute, said that the sharp fluctuation of Luna price is mainly the result of the anchor breaking of the algorithm stable currency ust price. Coupled with the impact of external factors such as the sharp decline of US stocks, the mood of the whole encryption market became more and more panic, Luna was under greater selling pressure, and the price began to fluctuate violently.
Beijing Business Daily reporter learned that ust is the third largest stable currency in the cryptocurrency market, and its price has always fluctuated around us $1 before. From May 10, ust also plummeted, and fell to $0.21 on May 11, which is far from its "stable currency" attribute.
Due to Terra's network congestion caused by the sharp decline of Luna coins, resulting in the accumulation of a large number of pending withdrawal transactions, the cryptocurrency exchange coin security once announced the suspension of the withdrawal business of Luna and ust tokens on May 10. From the feedback of some coin circle users, the relevant businesses have been restored.
Jiang Zhaosheng told the Beijing Business Daily that at present, the common legal currency mortgage type and encrypted asset mortgage type stable currency in the encryption market maintain the price stability of the stable currency by taking legal currency, encrypted assets or other assets as value collateral. For example, usdt maintains the 1:1 anchoring relationship with the US dollar by mortgaging US dollars and other assets.
"Ust is an algorithmic stable currency, that is, in theory, it does not need to rely on other mortgage assets, but maintains price stability by adjusting the relationship between supply and demand in the market." Jiang Zhaosheng explained that Luna is an important puzzle in helping ust anchor mechanism. Luna and ust are the original tokens in Terra's public chain ecology.
According to its operation mechanism, when the market demand for UST increases and the price is higher than US $1, the user can send us $1 Luna (Luna is burned) to the system and exchange it for one ust (UST is cast). On the contrary, when the demand for UST decreases and the price falls below US $1, the user can send us $1 (UST is burned) to the system in exchange for us $1 Luna (Luna is cast), so as to reduce the market supply of UST, Restore the anchoring relationship between ust and the US dollar.
Jiang Zhaosheng pointed out that in both cases, users can obtain additional benefits through arbitrage, so in general, the market will carry out arbitrage spontaneously to help maintain the endogenous power of ust and US dollar anchoring. However, if the encryption market encounters severe fluctuations or ust credit is seriously damaged, the stability mechanism of spontaneously regulating the relationship between supply and demand through the market will fail, and large-scale liquidation events may occur, which will further collapse ust credit and fall into a "death spiral".
From the performance of the currency circle in the past, there are not a few cryptocurrencies that have experienced sharp declines after soaring out of the circle, and even the farce of clearing within 5 minutes. Unlike in the past, Luna currency is closely related to the stable currency UST, and its collapse has also raised doubts about the cryptocurrency ecosystem in the market.
"Ust's anchor breaking this time has once again raised doubts about the algorithmic stable currency model in the market, and the market sentiment has been greatly affected." Jiang Zhaosheng said that in order to prevent ust from falling into the "death spiral", the Luna foundation guard (i.e. "LFG"), a non-profit organization supporting terra, used a large amount of reserve bitcoin for UST disk protection, which also led to greater downward pressure on bitcoin and further spread of market panic.
Jiang Zhaosheng pointed out that at present, ust is still in a serious state of de anchoring, Luna prices are also falling all the way, and the means that LFG can use are also very limited. In this case, ust will face great challenges in restoring its anchor relationship with the US dollar in the short term, and may need more external forces to recharge its "credit". "Cryptocurrency trading risks are huge. Ordinary investors should remain rational and avoid blind investment. Especially in the current market with high overall risk, don't copy the bottom at will."