Terra (LUNA) Practically Goes to Zero, TRON in Trouble
Terra (LUNA) managed to get erased as a top 10 crypto asset in less than 72 hours. The bulk of the losses happened on May 11, when over the course of a day LUNA showed it could not keep any value and sank from around $30 to under $0.87.ย
There is no end in sight to the fall of LUNA, with expectations the asset may lose all of its value. The market cap of LUNA quickly went below that of Terra USD (UST), with no chance to return the stabilizing mechanism. Selling BTC also did not help preserve UST, only managing a short-term return to $1.ย
Do Kwon, founder of Terra-LFG, called on the community and mentioned some potential to recover the LUNA project. However, most crypto participants hold little hope of returning the value of LUNA.
Terra Effect Spilled Over
The selling of the Terra Bitcoin (BTC) reserves pressured prices across the board. BTC continued to slide, returning to $27,991.53 and setting the stage for an even bigger correction.ย
Terra and LUNA have had a similar de-pegging event a year ago. However, this time the loss of credibility is much more significant.
The Terra deleveraging can be compared to the fall of BitConnect, one of the first schemes where the value of BTC supported the creation of new assets. BitConnect crashed with a peak market cap of $2.5B in notional value, while LUNA had accrued more than $28B in value locked and above $40B in market capitalization before crashing.
Despite the more liquid and developed market, LUNA still pressured all other assets. Avalanche (AVAX), which also holds some of the supply of UST, fell to $33.55, down more than 28% in a day. Solana (SOL) sank to the $55 range. NEAR Protocol is also down by more than 25%, as it is one of the partners of Terra, sinking to $7.33.
The fallout for crypto markets remains chaotic, exacerbated by leveraged positions. LUNA trading has basically stopped, as any attempt at leverage would end with liquidations. The price at the low range is extremely unstable, dipping by as much as 50% and doubling, with a trend to go to zero or even see trading suspensions. LUNA was extremely volatile,crashing as low as $0.87, then regaining positions to $2.20 on limited trading. The asset fell below the top 30 of assets within hours and slid as low as $0.41.
Will the TRON Ecosystem Repeat the LUNA Crash
The TRON ecosystem is now in charge of the newly minted USDD stablecoin. There are fewer USDD in circulation, to the tune of a few million, and an attack would have much smaller repercussions.ย
In fact, analysts believe it may be wrong to try to save the peg with deliberate selling. Still, there are some signs of operations on behalf of TRON. Justin Sun, the co-founder of TRON, noticed the attempt to short TRON and considered it a sign of a potential attack against USDD.ย
TRX has not suffered and remains within its usual range of $0.074. At the same time, there were signs of USDT movements from Justin Sunโs USDT wallet to Binance, for an undisclosed operation.
Terra Crash Tests Stablecoins
The Terra crash also raises questions on the backing of stablecoins and their potential to hold the dollar peg during the equivalent of a bank run. The crypto world has no lender of last resort and no mechanisms for bailouts, hence a faulty project could go to zero and disappear.
Tether (USDT) and USDC still fluctuate between $1 and $0.99. Neutrino USD is the worst performing algorithmic stablecoin, stressed to a level of $0.89. There is still not enough data on USDD to estimate whether its stability mechanism is under attack.
The problem of algorithmic stablecoins is that some may be supported by a circular mechanism, where they pump the price of their reserve assets, then print more coins. This may work while the market is going up based on bullish enthusiasm, but unravels fast, especially with panic or a directed attack.
Will Funds Return to BTC
One of the side effects of the unprecedented Terra event may be a return to BTC. The leading coin still manages to hover above $30,000, though its stability is threatened.
BTC trading volumes also increased to above $64B in 24 hours, after record inflows to exchanges. Terra LFG may still be selling its peak BTC holdings, but at the same time, there is a chance for new asset accumulation.
In the short term, there are expectations for further unraveling until BTC reaches its bottom and eventually starts a more lasting recovery. The immediate predictions are for the dip to extend another 30%.
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