The Terra/Luna cryptocurrency dropped another 75% overnight alone. This is one of the most spectacular crashes in cryptocurrency history and the biggest crash among the top cryptocurrencies. The project dropped from nearly $80 to $5 in 5 days. The cryptocurrency market is keenly watching the latest news about the project, whose collapse is being likened to the 2008 Lehman Brothers bankruptcy:
- Treasury Secretary Jannet Yellen, testifying before the Senate Banking Committee, noted the danger stablecoins pose to the liquidity of the financial system and announced the creation of appropriate regulations by the end of the year. In turn, the Federal Reserve commented on the situation on the stablecoin market in a report dated May 9, “The stablecoin sector continues to grow rapidly and remains exposed to liquidity risks.”
- The developers of Terra/Luna are not saying much, the creator of the project DoKwon who has been active in the media in recent weeks is now publishing enigmatic posts;.
- Algorithmic stablecoin TerraUSD (UST), which was supposed to mimic the U.S. dollar continues its decline, is now worth $0.45, not helped by the Luna Foundation’s commitment of $1.5 billion in Bitcoins in an attempt to rescue the stablecoin.
- Investors seem to have completely ‘blindly’ believed in the sustainability of the cryptocurrency due to its reliance on mathematical code. However, the code has not been properly analyzed and the risks of the algorithmic model have not been properly identified;.
- The Anchor Protocol built on TerraUSD was supposed to provide investors with up to 20% returns on passive investment involving blockchain tokens in the ecosystem and was described by many as a ‘safe haven’ during the cryptocurrency market downturn and attracted a lot of capital recently;
- Some investors pointed to data that confirmed withdrawals in the millions of dollars from Anchor Protocol over the past few days by the largest holders, who accounted for 0.1% of all investors in the project;.
- The collapse of stablecoin UST has attracted speculative attacks on the project and a panic sell-off of Luna holders who have lost confidence in the developers. The project’s declines have fueled the long-running stablecoin controversy; the Terra/Luna project’s capitalization still stands at nearly $2.3 billion.
Terra (LUNA) chart, D1 interval. Source: xStation5