It is reported that after the stablecoin TerraUSD (UST) and its sister token Luna plummeted in a spiral last week, South Korean speculators believed that the price of Luna coin had fallen beyond any point, and they have poured into it recently.
It is understood that both UST and Luna are virtual coins issued by the Terra blockchain project established by Korean DoKwon in 2018.
The value of Luna, the sister token used to absorb the UST price shock, has almost completely evaporated after the unexpected UST thunderstorm last week.
The two tokens cost investors around $42 billion, according to blockchain analytics firm Elliptic.
The collapse of UST and Luna also roiled the global cryptocurrency market and caused the world’s largest cryptocurrency, Bitcoin, to lose about a quarter of its value between May 9 and 12.
However, the slump in Luna’s price did not make speculators retreat, but instead made a large number of speculators buy and bet that the token, which was once worth close to $100 at the end of April, will usher in a miraculous recovery, and even some Some believe that the value of the token is “too big to fail.”
“Luna used to be the top 10 virtual currency by market cap, so they will do whatever it takes to revive it,” wrote one hopeful investor in a blog post on South Korean internet platform Naver.
He added that he bought 300,000 Luna coins at 0.33 won (about $0.0003) each over the weekend through an international cryptocurrency exchange.
The sudden surge in speculation has also made South Korea’s Financial Services Commission (FSC) wary, warning people not to invest in Luna on Tuesday.
The number of investors in the virtual currency rose by more than 50% in just over two days to 280,000 people on major South Korean exchanges as of May 15, according to an FSC source. The source said that while there was some inflow from abroad, the purchases were mainly from domestic speculators.
But with a limited speculative window, this purchase of funds had little impact on the token’s price. Luna has been hovering between 0.0001 and 0.0004 cents for the past week.
Previously, the two largest exchanges in South Korea, Bithumb and Upbit, said that they would suspend trading support for Luna on May 27 and May 20, respectively, while another South Korean exchange, Coinone, has stopped trading Luna.
Save the Terra Ecosystem
Luna and UST were among the top 10 cryptocurrencies by market capitalization in the world at an early stage due to the market’s enthusiasm for volatile and risky assets such as stocks and cryptocurrencies. But on May 10, everything seemed to fall apart when the UST’s one-to-one “stable peg” to the U.S. dollar was broken.
Unlike stablecoins, such as Tether and USD Coin, which are backed by cash and assets to maintain value, algorithmic stablecoins like UST are not asset-backed, but maintain value through an arbitrage relationship with another cryptocurrency.
If its price falls below $1, traders can exchange the currency for Luna, increasing the price of UST by reducing the supply. Conversely, if the UST price exceeds $1, traders can exchange Luna for UST to guarantee that UST is pegged to $1.
But this mechanism has not worked during past slumps. Algorithmic stablecoins rely on traders to push prices back to $1, and if traders are unwilling to buy, the currency falls into a “death spiral.”
As the market collapsed, hundreds of angry retail investors took to social media to recount their tragic ordeal, and some even demanded compensation from Kwon.
The Luna Foundation Guard, founded by Kwon, said on Twitter that it had spent almost all of its Bitcoin reserves last week in an effort to save UST, but the value of UST has not recovered, meaning Terra’s efforts have been a complete failure.
But Kwon didn’t give up and proposed “Revival Plan 2” to save the Terra ecosystem, and the proposal will go into effect after token holders vote. Kwon promised that voting would begin on May 18. If approved, the new Luna blockchain will go live on May 27.
