Terra LUNA is a blockchain protocol and decentralized financial infrastructure that introduces several novel principles and theories to the market. To deliver users programmable money for the internet, the network uses a stable coin protocol, native token, smart contracts, and an oracle system.
The project provides a variety of stablecoin choices with a quick settlement. Terra uses a price-stability algorithm to accomplish this, which actively changes an asset’s monetary supply to maintain value. Terra can provide users, smoother cross-border exchanges, increased stability, more responsive financial assets, and lower fees as a result of this.
Terra Luna Origins
Daniel Shin and Do Kown founded Terra, as well as Terraform Labs, the South Korean firm driving the Terra ecosystem, in 2018. Terraform Labs received US$32 million in funding, with major investors including Huobi Capital, OKEx, Dunamu & Partners, Upbit, and Binance.
The Terra blockchain white paper was published in April 2019, the same month its mainnet was deployed. Terra is described in the document as a price-stable, growth-driven stablecoin with a flexible money supply facilitated by stable mining incentives. The protocol also makes use of seigniorage, or the profit generated from producing currency, to encourage transactions and broaden adoption.
Stablecoins pegged to the U.S. dollar, South Korean won, euro, British pound, Chinese yuan, and Japanese yen, as well as International Monetary Fund’s special drawing rights, an international reserve asset that augments the currency reserves of the multilateral lender’s member nations, have been issued under the protocol.
2020-2021 Performance
Investors were first able to purchase LUNA in private token offerings on many major exchanges. Terra raised 32 million dollars via the sale, which ended in August 2018.
Terra (LUNA) was priced at USD 1.34 a year later, on Aug. 2, 2019. The price then rose sharply on Aug. 14, reaching 1.40 USD.
This rise, however, was followed by a drop. The price of LUNA was 0.26 USD till the conclusion of the year.
The DeFi and stablecoin developments of Terra Protocol boosted LUNA’s market cap to $200 million in 2020.
Due to a major sell-off, the price of LUNA fell by around 81% in May 2021. LUNA, however, managed to reverse its position in early December 2021.
On Dec. 5, 2021, LUNA reached an all-time high (ATH) of 77.14 USD. According to Coingecko data, Terra has increased by more than 50,000% since its all-time low price (ATL) of 0.1 USD on Mar. 18, 2020.
LUNA’s rising prices have surpassed the two most valuable meme currency assets, Shiba Inu and Dogecoin.
Terra LUNA delivered another outstanding performance a few weeks later. The price of LUNA increased to an all-time high (ATH) of 102.73 USD on Dec. 27, 2021.
LUNA jumped over Avalanche (AVAX), Polkadot (DOT), and Dogecoin (DOGE) as a result of the price increase (DOGE).
According to the DeFi Llama platform, Terra’s total lock-in value (TVL) in December 2021 was 19.32 billion USD, up over 36,250 percent from the TVL on Jan. 1, 2021, which was only 53.15 million USD.
May 2022 Death Spiral
UST began de-pegging from the U.S. dollar on May 9 and by the end of the trading day, it had dropped to US$0.72. Part of the reason UST lost its peg was because of extremely volatile markets and macroeconomic factors, which also prompted Tether’s USDT to de-peg temporarily before burning 3 billion tokens to stabilize.
The discrepancy was caused, according to Terra founder Do Kwon, by the network’s price stabilization mechanism absorbing over 10% of UST supply, widening the on-chain swap gap to 40%, and driving down LUNA prices in the meanwhile.
On May 11, Kwon shared a UST recovery plan, stating that “the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to re-peg.” As a result, Kwon endorsed community proposal 1164, which would increase the daily minting capacity from $293 million to $1200 million, allowing the network to absorb the UST supply faster.
That was ineffective. According to CoinMarketCap data, UST fell to $0.17 on May 13.
Short sellers were suspected of being involved in the UST collapse. According to one theory, financial managers Blackrock and Citadel borrowed $100,000 from cryptocurrency exchange Gemini in order to short UST. Cardano founder Charles Hoskinson tweeted an illustration depicting this theory before deleting it after Gemini denied making such a loan.
Will Terra Recover?
Luna’s price has not been restored to its previous level, but it has climbed from its all-time low. The price of Luna is $0.000138 at the time of writing, down 99.9% in the last seven days but still over 12,000% higher than its low. Luna’s price was roughly $80 at the start of May, for reference.
Luna’s price has dropped 26% in the last 24 hours after seeming to stabilize over the weekend.
Luna’s market capitalization has recovered to about 800 million dollars, down from $20 billion on May 9. While this is still a decline of almost 90%, it is a far cry from the $58 million market cap it reached on May 13.
One cause for the significant decline in Luna’s price is the circulating supply. On May 12, approximately 13 billion Luna were in circulation, up from 343 million prior to the crash. This has increased to 6.5 trillion Luna as of May 19.
So while Kwon is hopeful that the Terra Luna will be rebirthed, for now, that hasn’t happened yet.