the LUNA Coin Plummet:The Beginning and End

The price of virtual currency is extremely unstable, and skyrocketing and plummeting market prices are common. However, unlike the previous “air coin” plummeting to zero, LUNA coin is highly correlated with UST, the third largest stable coin in the currency circle.

“A project with the top ten market caps will collapse immediately, and it will return to zero in a week. The impact on the confidence in the currency circle is comparable to a nuclear bomb attack.” An observer in the currency circle said.

On May 12, there was a major earthquake in the currency circle.

The price of a virtual currency called LUNA fell in an almost straight line. It fell by as much as 99% from around $5.8 to $0.05. Three days ago, the price was as high as $60.

Such a drop has made speculators who are used to seeing sharp rises and falls also dumbfounded. “It really opened my eyes. It fell by more than 95% on the first day, and it can fall by 99% on the second day.” The investor complained.

The price trend of LUNA coin since its establishment

LUNA coin plays a pivotal role in the virtual currency market, and its circulating market value once ranked in the top five in the virtual currency market. In April this year, its price reached a high of $116, with a total market value of over $41 billion.

In the past year, the rising price of LUNA has attracted speculators. From the beginning of 2021 to April this year, its price has risen nearly 200 times, proving its status in the minds of speculators.

LUNA coin is highly related to UST, a stablecoin in the virtual currency market, both of which are tokens in the Terra blockchain system. Before the crash, UST was the third-largest stablecoin in the virtual currency market.

Although the mechanism mentioned above, the whole process is maintained by a so-called “automatic market maker” algorithm to achieve the so-called “decentralization“.

But just like the linked exchange rate system of credit currency, once the value of credit currency depreciates, the issuer needs to continuously consume foreign exchange reserves and buy credit currency to support the market.

Once the foreign exchange reserves are depleted, the currency value of the credit currency will be decoupled, and the exchange rate will collapse.

Algorithmic stable coin, although UST coin has the LUNA coin as a stabilizer, if the UST coin sells too much, it will cause the LUNA coin price to collapse, which will also put the UST coin at risk of decoupling.

Conversely, if the funds purchased by UST coins continue to increase, the price of LUNA coins will continue to rise, which will attract more funds to buy, which is conducive to the issuance of UST coins and makes it easier to maintain the stability of the currency value of UST coins.

Therefore, any kind of stable currency will throw out the “interest” bait in order to attract people to buy stable currency.

Generally, stable coins will give a high interest of 10% to attract users to buy.

The UST coin is issued by a Korean team. In order to attract users to buy UST coins, the Korean team gave an astonishing 19.8% interest.

Everyone must know why the LUNA coin collapsed this time.

This reminds me of the famous saying in 2018 that as long as the annual rate of return of wealth management products exceeds 10%, we must be prepared to lose all the principal.

However, human greed still makes people forget about risks.

The 19.8% interest project of UST coin has been snapped up in the past year, and among them, the most fanatical speculators in South Korea are naturally the most.

Relying on the attraction of high interest rates, more and more people bought UST coins, which caused the price of LUNA coins to rise wildly, before this crash.

The price of LUNA coin has risen from $6 a year ago to the highest of $120, an increase of 20 times.

However, just like all Ponzi schemes and games of drumming and spreading flowers, all such projects with high interest rate temptation are under the guise of investment, but basically the high interest rate of the people in the front is basically subverted by the funds of the buyers who come in later. , No matter how the routines change on the surface, they remain the same.

The Korean team of UST Coin raised funds by issuing a large number of LUNA coins.

The additional LUNA coins are exchanged into UST coins through its algorithmic mechanism to satisfy the enthusiastic new buyers and pay the high interest of the old buyers.

At this time, the people who hype UST coins and LUNA coins are roughly divided into two groups.

One is to buy UST coins for 19.8% interest.

One is to buy LUNA coins, in order to eat the price difference.

The more funds that buy UST coins, the more conducive to LUNA coin speculation, which seems to form a positive cycle during the crazy speculation period.

However, in order to maintain such a positive cycle, in order to meet the interest rate of 19.8%, the scale of the entire fund needs to snowball.

Once the follow-up funds cannot keep up, the price of LUNA will plummet, which will lead to a sell-off of UST, which in turn will form a negative cycle of death spiral.

Before this crash, the scale of UST coins reached $20 billion at the most, and the scale of LUNA coins reached $40 billion.

This is already quite an exaggerated scale.

If it is to snowball further, it will be very difficult, so it is not surprising that LUNA will collapse at this point in time.

Then any crash must have some fuses.

The Korean team that originally issued LUNA coins is also a Korean e-commerce giant, and has some industrial projects endorsed.

Therefore, he gave this 19.8% interest, but also promised various investment projects.

But in fact, in the current global economic downturn, the investment made by the Korean team, not to mention making money, has a high probability of losing money, which makes these interests have to be paid by the Korean team to maintain 19.8%. High interest, he can not afford to burn.

So in early May, the South Korean team announced that the annual rate of return was lowered to 18%.

As a result, as soon as this hole was opened, the price of LUNA coin fell sharply, and people’s confidence in LUNA coin was obviously insufficient.

Originally, such a one-by-one Ponzi scheme was built on the blind confidence of the latecomers.

Once such confidence is lost, it is easy to cause the entire capital chain to break, forming a death spiral of selling.

In addition, this year, the Federal Reserve has begun to aggressively raise interest rates and shrink its balance sheet. The Fed raises interest rates, and massive funds will flow back to the United States.

This is actually robbing money from these virtual currency capital pools.

This has also led to a continuous decline in the prices of all virtual currencies this year, including Bitcoin, which has fallen from $60,000 to below $30,000 now.

Such high-risk assets were originally at a sensitive moment of turbulence, so the LUNA coin, under the superposition of many factors, triggered a large number of selling waves, and finally formed a stampede crisis, and the price plummeted, almost returning to zero.

After the LUNA coin collapsed, the UST coin was also seriously decoupled from the U.S. dollar, and on May 14, it had dropped to only 0.15.

Investors also expressed dissatisfaction: these people copied another LUNA and UST, and then moved on like nothing happened. “It shouldn’t be.”

In any case, the speculators who had liquidated their positions in the slump, and those who held UST and LUNA before Terra ceased operations, their looted wealth will never be returned.


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