Gate.io Blog After The LUNA Crash, What Is The Current Situation Of The Restarted LUNA?

After The LUNA Crash, What Is The Current Situation Of The Restarted LUNA?

03 August 11:01

[TL; DR]

Surprisingly, the Luna coin, which had a market cap of $40 billion in May 2021, crashed in 2022.

The Luna token price value has crashed from $116 to a fraction of a penny.

According to the developers of the Luna coin and the Terra community, a Luna rebirth or Luna 2.0 will be unveiled soon.

The Terra blockchain has two native stablecoins; Luna coin and UST stablecoin

The UST stablecoin is pegged to the United States dollar and is equivalent to $1.

The Luna token and UST stable coin were affected when the crypto market slipped to its bearish phase.

The crypto winter period that saw the fall of Bitcoin from $60,000 to less than $20,000 also saw the fall of the UST stable coin from $1 to 7cents.

Luna token worth about $116 in April 2021 now goes for a fraction of a penny.

The major reason for the crash of the Luna coin was the depeg of Terra UST.

Selling over $2 billion worth of UST without staking or burning its Luna equivalence also led to the crash of Luna.

The restarted Luna, Luna 2.0, or Terra 2.0 will be without the UST stablecoin that was believed to be the direct cause of the crash.

Keywords: Luna, crypto, Terra, UST, coin, token, crash, stablecoin.

[Full Article]

Since 2022, the crypto market has recorded an unprecedented decline across major crypto assets. While the fall in price value varies between these crypto tokens, some were badly hit by the tsunami.

For instance, the LUNA coin, which had a market cap of about $40 billion in May 2021, has crashed to the lowest, and the price value has fallen from about $116 to a fraction of a penny.

The developers of the LUNA coin and its Terra community have picked up their pieces and will restart a new LUNA soon. However, it is expedient to understand the reason for the crash and the situation of the restarted LUNA coin.

Not to worry, this article will examine the reasons behind the crash and the situation of the restarted LUNA.

Let's begin!

The Crash Of The LUNA Token

Image: Bulliscoming

The Terra blockchain has two native stablecoins: the UST stable coin and the LUNA coin. The UST stablecoin is pegged with the US Dollar and equivalent to $1. However, when the cryptocurrency market entered its bearish phase, the UST stablecoin and LUNA were not spared.

The crypto bear market that spiraled into a “crypto winter” saw the crash of Bitcoin, the foremost crypto token, from about $60,000 to less than $20,000. During the same period, the UST stablecoin that was equivalent to 1$ dropped to about 7cents. Similarly, the LUNA coin, whose price value was about $116 in April, crashed to a fraction of a penny.

Mike Boroughs, the co-founder of Fortis Digital, said, “This is historic for the crypto markets……. It is a defining moment for the space due to its size and impact on the number of people that lost substantial value.”

It is important to know that over the years, small-cap memecoins have witnessed implosions or crashes in the past. However, a coin of LUNA’s market size has never witnessed such. At a period the market capitalization of LUNA was about $40 billion, what could have led to the drastic fall of such a token with a high market cap?

While there are no official reports on the cause of the crash of LUNA, experts and industry players have suggested some likely reasons for the crash.

The first major reason that led to the crash of LUNA was the depeg of the Terra UST. The Terra blockchain produces LUNA, and you need to burn Luna to create a UST, and that is how the blockchain works.

For instance, in May 2021, one Luna coin was worth $85, and you could trade one LUNA token for 85 UST, but the LUNA will be destroyed (burn) in creating the Terra UST. It is considered a deflationary protocol.

So on the 7th of May, 2021, instead of staking the UST before being sold, over $2 billion worth of UST was unstaked, and millions of it were sold into the market immediately. The sale without staking of such a huge amount of UST pushed the price down to 91 cents. This fall from $1 to 91 cents is regarded as “depeg.”

The traders responded by trying to take advantage of the arbitrage. They started exchanging 90 cents worth of UST for $1 worth of Luna. This led to the fall from 90 to 50 cents, down to 30 cents. The Luna coin is currently worth less than 20 cents.

The Restarted LUNA

Image: Crypto News

The Luna crash is unprecedented, and the developers, Terra stakeholders, or community members did not envisage such a crash. However, since the crash, Terra blockchain is moving to a new dispensation with a Luna rebirth.

The current situation of the Restarted LUNA is that stakeholders and backers of Terra have voted to revive the Luna coin after its crash. As part of the rebirth, a new update has been introduced.

The update is that Luna will be restarted without its stablecoin, the UST. Being the cause of the steep fall and the eventual crash of Luna, the restarted Luna will be reintroduced without the UST coin.

The Terra blockchain developer announced on Twitter that "Terra 2.0 is coming". They added, "with overwhelming support, the Terra ecosystem has voted to pass Proposal 1623, calling for the genesis of a new blockchain and the preservation of our community."

With the launch of the new Luna coin, even though it will sever ties with the failed stablecoin, the old Luna (that crashed) will not disappear completely. Both Luna 1.0 and Luna 2.0 will co-exist in the crypto market.

In addition, holders of the old Luna, now renamed classic, and the UST will get a part of the new 1 billion units of Luna 2.0 token. The new Luna holders will receive 35% of the restarted Luna, those who held the UST before its crash will get 10%, traders who had the Luna and UST after the crash will get 25%, while 30% will go to a pool of Luna investors.

Conclusion

Image: Trak.in

According to CoinGecko, since the announcement of a Luna rebirth, the price value of Luna has surged by about 20%, while UST has increased by over 50%.

The major update that will get rid of the UST stablecoin that led to the crash of the first Luna token will increase the success of the Luna 2.0. It is therefore expected that when the current bear phase of the crypto market ends, the restarted Luna will witness a price surge alongside other crypto tokens.

Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute any investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.

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After The LUNA Crash, What Is The Current Situation Of The Restarted LUNA?

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