Terra chain halts after LUNA crashes 99.9% – can the token pull a phoenix?

Key Takeaways:

  • Terra's governance token LUNA crashed over 99.9% in three days.
  • The network halted all blockchain activity until further notice.
  • Can LUNA and UST recover?
Terra, Terra chain halts after LUNA crashes 99.9% – can the token pull a phoenix?
Photo by Natalie Dmay on Unsplash

YEREVAN (CoinChapter.com) – Stablecoin issuance protocol Terra made headlines in the previous days after its governance token LUNA crashed from $65 on May 9 to virtually non-existent $0.008 on May 12. The company declared that Terra Chain “officially halted at a block height of 7603700” on Thursday to “prevent governance attacks.”

The Network alerted its followers that delegations will be disabled once block production resumes.

The network should go live once 2/3 of the voting power comes online. An update will be provided accordingly.

further stated Terra.

Also read: Terra (LUNA) and its stablecoin, UST, tank as Binance halts withdrawals citing network congestion.

Terra (LUNA) UST daily chart. Source: TradingView.com
Terra (LUNA) daily chart. Source: TradingView.com

As a result of the floored price, Terra’s Reddit thread burst with panic. Some users went as far as to suggest “a suicide is my only way out,” which did nothing but spread even more panic and ill-founded rumors.

Ladies and Gentlemen… I know this is probably heartbreaking for a lot of You but this project is Dead, It’s gone it’s deceased…don’t be dumb and buy any “DIPS” this will be dropping in price for at least a month or more before there is even a day of 0.05% green or profit. For anyone considering doing any life-threatening actions seek Help ASAP.

advised another LUNA holder.

Will LUNA recover?

While LUNA holders called a time of death on the project, Do Kwon, the chief executive of Terraform Labs, tweeted his vision of the possible resurrection. In detail, the plan involved returning the network’s main stablecoin Terra USD (UST), to its dollar peg.

Also read: Mirror Protocol (MIR) hits record low as Terra fails to maintain the UST-peg.

First, we endorse the community proposal 1164 to Increase basepool from 50M to 100M SDR. Decrease PoolRecoveryBlock from 36 to 18 This will increase minting capacity from $293M to ~$1200M. https://station.terra.money/proposal/1164 This should allow the system to absorb the UST more quickly.

proposed Kwon.

He also asserted that the Terra ecosystem is “one of the most vibrant in the crypto industry.” Thus, as long as the builders continue to build, “we will come out of this together.” However, the LUNAtics beg to differ, as some of them allegedly lost all their savings by betting “on the wrong horse.”

Also read: Terra makes ‘fishy’ attempts to maintain UST’s dollar peg as LUNA dips 25%.

Analysts assessed the extent of the damage and concluded that LUNA could get back on its feet, given UST’s proper return to its peg. However, it was cryptical to show investors that such a drop will not happen again.

What happened?

As the predictions differ from “LUNA is dead” to “we’ll rise again stronger,” it is crucial to understand what exactly happened to Terra, LUNA, and UST.

Firstly, LUNA and UST are closely interconnected. For example, to mint algorithmic stablecoins, Terra burns LUNA tokens. Thus, LUNA is also used to correct UST’s dollar peg when the latter is unstable, serving as a floating ‘price shock absorber’ for UST volatility.

Also read: Terra (LUNA) dumps 10% to become the worst-performing token among major cryptos.

One of the earliest signs of things going wrong for the stablecoin came when UST deposits on Anchor started dropping on Saturday, May 7. Notably, Anchor offered up to 20% yields on the deposited UST. Given the high yields, Anchor hosted over 75% of the stablecoin’s circulating supply or $14 billion out of $18 billion. Moreover, some critics asserted that the yields were “unsustainable.”

However, the broader market turbulence and Bitcoin volatility contributed to a drop in UST deposits that went from $14 billion to $3 billion. So much money draining from UST’s primary hub signaled a massive loss in confidence in the entire Terra protocol.

The withdrawals possibly ended on the open market, contributing to the sell-off pressure. To shore up UST’s price, the Luna Foundation Guard (LFG) deployed over $2 billion in its newly formed Bitcoin (BTC) reserves.

Also read: Bitcoin week ahead Ep21: Focus shifts on inflation data as BTC eyes $30K next.

While Terra’s future remains in jeopardy, LUNAtics grapple between abandoning the project or waiting out the storm. Experts are also divided on the matter, as the future sessions will shed more light on Terra’s efforts.

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Terra, Terra chain halts after LUNA crashes 99.9% – can the token pull a phoenix?

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