Some thoughts from veteran cryptanalysts about the fall of Terra (LUNA)

Key facts:

While USDT or USDC is backed with fiat money, Terra is anchored to the dollar by an algorithm.
The massive sell-off led to sharp drops in UST and its sister token LUNA causing the “disconnection”.

The past week has been a dark period in the history of cryptocurrencies. The total market capitalization of this industry fell to USD 1.2 trillion for the first time since July 2021. On or about May 4th, Terra (MOON) was ranked among the 10 most valuable cryptocurrencies on the market, with a single token quote at a price of USD 85 and the all-time high at the price of USD 119.5. However, by May 11, the price of the asset had dropped to $15. And, 48 hours later, the token has lost 99.98% of its value, currently trading at a price of USD 0.00003465.

The turmoil caused by Luna, in large part, has been due to the real-time disintegration of Terra, a Cosmos-based protocol that powers a set of algorithmic stablecoins. In parallel, the fall of Terra calls into question the real-world usefulness and long-term viability of algorithmic stablecoins.

The inherent characteristics of algorithmic stablecoins contributed to the decline

Unlike Tether’s USDT or Circle’s USDC, which are backed by fiat money or an equivalent asset, Terra is designed to maintain pegging through a mathematical algorithm and active operations. Recently, the UST has been “de-pegged” from its $1 value by high selling pressure due to the massive drain from Anchor.

Since they are united by the mechanics coin and burn on chain, that massive sell-off led to sharp drops in both UST and its sister token LUNA. Then the “disconnection” happened. When traders realized that USD 1 of LUNA was no longer worth USD 1 of UST, they became insolvent. As a result, LUNA plummeted by 98% of its price and lost most of its market capitalization.

What can we learn from Luna?

Faced with such a fall in the MOON, many investors may have a concern in their hearts: How can I prevent such a fall from happening to me? Regarding this concern, a veteran cryptanalyst from Bexplus shows his perspective. In fact, the characteristics of altcoins determine the volatility and high risk of LOSSES. In terms of risk resistance, undoubtedly, the main currencies (Bitcoin, Ethereum, etc.) are stronger.

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Let’s use an example to illustrate how 100x leverage works. Suppose we use 1 BTC to open a long contract when Bitcoin is trading at $30,000. A day later, the price of Bitcoin rises to USD 35,000. The profit will be ($35 000-$30 000)*100 BTC/$35,000 *100% ≈ 14.2 BTC, which makes the ROI 1420%.

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