If you have been interested in the cryptocurrency market, then you have heard about Terra (LUNA). If you do not know what this project is and how it became one of the top 10 largest cryptocurrencies in the market, don’t worry, we have created a guide for you.
In the next few sections, we will get into the details of what Terra (LUNA) is and how it is having a large impact on the crypto market. Moreover, we will tell you how this project is related to UST, one of the largest stablecoins in the crypto market.
What is Terra (LUNA)?
Terra (LUNA) is a cryptocurrency and blockchain project that focuses on the creation of different stablecoins. Stablecoins are virtual currencies that have their value pegged to a fiat currency. For example, a USD-pegged stablecoin will always be worth $1 or close to this value. Meanwhile, a EUR-pegged stablecoin will always be worth €1 or close to it.
Therefore, stablecoins are becoming increasingly popular in different decentralized finance (DeFi) and decentralized platforms in the market. Terra is one of the blockchain networks that it is making the expansion of the crypto industry possible and helping create a large number of stablecoins around the world.
Each of the coins that are created on the Terra network (stablecoins) can be converted into LUNA tokens. The goal of having LUNA tokens is to pay for network fees (as in every blockchain network) and have governance power in this blockchain protocol.
LUNA is also working as a way to stabilize the value of the stablecoins created on this network. Compared to other stablecoins in the market that have been backed by the real underlying asset (i.e. U.S. dollars or euros), the Terra network allows for the creation of stablecoins with a value that is programmable.
If the value of TerraUSD (UST) falls below $1, then, there is a supply reduction of UST (transformed into LUNA). This supply reduction makes it possible for the UST to come back to its previous price level of $1. If the price of UST moves above $1, the network will simply increase UST supply to push its value once again towards $1.
This is how LUNA and this blockchain network have been allowing for the creation of different stablecoins without having to be worried about the underlying asset affecting the price of this virtual currency. Thanks to the current growth that pushed LUNA higher, this virtual currency has reached the top 10.
Meanwhile, the UST cryptocurrency has also become one of the largest cryptocurrencies in the world. Indeed, it has almost surpassed Binance USD (BUSD) and reached the 14th place in the market. It is considered the fourth-largest stablecoin in the world behind Tether (USDT), USD Coin (USDC) and Binance Coin (BUSD).
It would be very interesting to see how the future of the market will evolve with this virtual currency in the coming months. It is also worth pointing out that this project became very popular in the Asian markets and it has expanded in different countries in the region. At the moment, there are different stablecoins that have been created on top of this blockchain network.
LUNA in the Cryptocurrency Market
Let’s now talk about LUNA in the cryptocurrency market and how this digital currency was able to reach the top 10. There are some things to take into consideration about it and how this project was able to become one of the largest in the world in such a short period of time.
The coin was released in 2019 and this is what CoinMarketCap shows on its website. From 2019 until early 2021, LUNA was almost a non-existent coin. The virtual currency had a value close to $0.20 most of the time. This shows that there was no interest and almost no volume for LUNA.
Now, in early 2021, when Bitcoin and other virtual currencies started to move higher, we saw that the coin bounced and registered massively large volumes. This represented a clear interest from the community and an influx of fresh funds entering the market. The coin moved from $0.295 to $1.43 between October 2020 and January 2021.
This allowed LUNA to start its first bull market that pushed the price of the coin to $22. This process took palace between January 2021 and March 2021. At the same time that LUNA was making new all-time highs, Bitcoin was suppressing everyone by breaking new all-time highs. Therefore, we see that LUNA followed the whole trend of the cryptocurrency market.
After reaching this price top, LUNA then entered an accumulation period that lasted until the end of May, when the cryptocurrency market plummeted. The coin moved from $22 to $16. This was the moment in May when the coin abruptly fell to just $4 per coin. At that time, many considered that a new bear market could start in the industry. However, this did not happen.
After hitting $4 per coin, LUNA was traded between $4 and $7 for some months (until mid-July 2021). At that time, the coin started moving higher once again. This has clearly had an impact on the long-term trend of LUNA. Since that moment, it is difficult to find a long-term period in which LUNA did not grow.
The coin has then been moving higher almost on a daily basis until reaching a top of $100 in late 2021 (November). This was also the moment in which Bitcoin hit an all-time high of $69,000 per coin. This shows that throughout the second half of 2021, LUNA experienced a very positive bull trend that allowed investors to make large profits.
There has been a small period of time between November 2021 and February 2022 in which the virtual currency fell by 50%. Nevertheless, the coin continued moving higher and a few days ago, LUNA reached an all-time high of over $107. This is how LUNA is now the 9th largest virtual currency in the market with a capitalization of $33 billion.
TerraUSD (UST) Explained
It is now time to talk about TerraUSD and how this stablecoin works. First of all, as mentioned before, UST or TerraUSD is a stablecoin that has its value pegged to the U.S. dollar. But there are different types of stablecoins depending on how the protocol that created them does to maintain the peg.
Usually, a stablecoin will require a financial institution or company to hold the fiat currencies necessary to back the price of the stablecoin. For example, if a stablecoin issues 1,000 tokens worth $1 each, this project should have $1,000 saved in a bank account (or similar) to back the value of the stablecoin.
While most cryptocurrency projects followed this approach, TerraUSD works in a different way. This is a decentralized stablecoin that runs on top of the Ethereum (ETH) blockchain and is considered to be an algorithmic stablecoin. The value is pegged 1-to-1 to the U.S. dollar but it does not have any type of backing more than the Terra network with the LUNA digital asset being used to create or burn UST tokens.
It is worth taking into consideration that UST works also on the Terra blockchain and it is currently used in order for users to get access to a wide range of decentralized finance (DeFi) protocols and traditional finance applications. The goal is to make it possible for investors to use this coin as a hedge against volatility in traditional financial and crypto markets while keeping a U.S. value at all times.
Thanks to the expansion of the Terra network over the last year, we have seen a massive growth of UST. Indeed, the coin was able to become one of the top 4 stablecoins in the market after USDT, USDC and BUSD. Therefore, this shows that there is a large demand for UST and that investors are using it all over the world to engage with different financial solutions.
The Terra and the LUNA ecosystems are interconnected. According to Terra’s official site, more demand for Terra stablecoins is equal to more value captured by LUNA, Terra’s decentralized reserve asset. Thanks to this growth, UST is now considered to be the largest decentralized algorithmic stablecoin in the market allowing for the creation of new solutions for users in the DeFi industry.
Where to buy LUNA and UST?
If you want to buy LUNA, you should know that this virtual currency is already available in a large number of cryptocurrency exchanges. This shows that there was a large demand for this virtual currency and that investors were searching for ways to get access to this coin and get exposure to this project.
Right now, Binance, KuCoin, Huobi Global and Bitfinex are some of the best platforms to buy LUNA. As usual, Binance is the cryptocurrency exchange offering the largest number of trading pairs for LUNA. This platform is letting investors trade LUNA/USDT, LUNA/BUSD, LUNA/BTC, LUNA/EUR, LUNA/ETH, LUNA/BNB, LUNA/UST, LUNA/AUD, LUNA/TRY, LUNA/BRL, LUNA/GBP and LUNA/BIDR. In this way, Binance is able to account for 23.45% of the total trading volume around the world of this virtual currency. This is massive just for one exchange. Moreover, Binance is also offering many other features for investors, including staking, a Launchpad and many other solutions.
Binance is usually one of the best platforms for investors that want to trade in the crypto market and get access to many other services and solutions related to digital currencies. Moreover, you can deposit funds on the Binance exchange using debit and credit cards in just seconds.
KuCoin, instead, has five different trading pairs for LUNA. These trading pairs include LUNA/USDT, LUNA/BTC, LUNA/ETH, LUNA/UST and LUNA/KCS. The trading volume for these five trading pairs is equal to 6.29% of the total trading volume for LUNA around the world.
KuCoin is a recognized cryptocurrency exchange that will let you deposit funds in many different ways. Moreover, it is also offering many trading pairs for investors. One of the positive things about KuCoin is that it also has large liquidity compared to other platforms.
Finally, Huobi Global is also one of the exchanges letting you trade LUNA. The company is offering four different trading pairs. These trading pairs include LUNA/USDT, LUNA/BTC, LUNA/HT and LUNA/UST. These account for 4.72% of the total trading volume around the world. As we can see, Binance is the leader in terms of trading volume and trading pairs when it comes to LUNA.
Now, when we talk about TerraUSD (UST), we see KuCoin having the largest volume for this virtual currency followed by Bitfinex, Huobi Global and then Binance. Binance, in this case, has only three different trading pairs: LUNA/UST, UST/BTC and ETH/UST. They account for 2.42% of all UST trading volume in the market.
Bitfinex, instead, has a massively large number of trading pairs that we would not be able to mention in this post. We are talking about 44 different trading pairs just on the Bitfinex platform. However, they account for close to 2.30% of the total trading volume for the UST virtual currency around the world.
How to buy LUNA and UST?
But how to buy LUNA and UST? As we mentioned before, the best way to do so is by using a cryptocurrency exchange account. The whole process is quite simple and this would let you get access to one of the fastest-growing virtual currencies in the world.
Step 1 – Create a Cryptocurrency Exchange Account
The first thing that you have to do to buy LUNA or UST is select a cryptocurrency exchange. We have shared with you the names of some of the most popular cryptocurrency exchanges offering trading solutions for LUNA and UST. It is up to you to decide which of them you use.
Once you have selected the cryptocurrency exchange, you will have to create an account. This process can take a few minutes and it might require you to pass a KYC verification.
Step 2 – Top Up Your Account
Now that you have a crypto exchange account, you have to deposit funds. This would let you purchase the coins that you want to buy. The deposit process should be quite easy and it only involves selecting the payment method and processing the transfer.
Step 3 – Buy LUNA or UST
After depositing funds, you can purchase UST or LUNA. You have to go to the exchange or trading platform and select the trading pair that you want to use to buy LUNA or UST. Once you have done that, you only need to confirm the transaction and the funds will be reflected in your account.
What Happened to LUNA? – The Move To Stablecoins
We all know that the cryptocurrency market has been in a bear trend since November 2021. Bitcoin (BTC), the largest cryptocurrency in the market, plummeted from $69,000 to below $27,000 for a brief period of time on May 12th. This represents a 60% price decrease in just a few months.
Let’s not forget that Bitcoin is the largest cryptocurrency in the world and the one that decides and defines the course of the entire crypto ecosystem. Therefore, if funds flow out from Bitcoin, it is quite likely that they would also leave other digital currencies, usually known as altcoins. LUNA was one of these digital assets.
There is also another thing to take into consideration. When markets crash, people and investors usually move to stablecoins. The largest stablecoins in the market include Tether (USDT), USD Circle (USDC), and Binance USD (BUSD), among others. These three virtual currencies are known as fiat-backed stablecoins. In order for their price to keep close to $1 (to keep their peg), it is necessary for the companies behind them to hold 1:1 cash or cash equivalents as a reserve. This would allow investors to redeem their tokens for actual USD.
However, there are other types of virtual currencies known as algorithmic stablecoins. Rather than relying on cash and cash equivalents, they work with algorithms that regulate their supply. When there is a sell-off in the market (lower demand for that stablecoin), the algorithm burns some coins, pushing the price higher and closer to the peg. Instead, if there is a larger demand for that stablecoin, the algorithm will print more in order to keep the price lower (closer to the peg).
UST or USD Terra was the stablecoin linked to the price of the US dollar (USD) of the Terra ecosystem. As we mentioned before, in a bear market, people leave volatile cryptocurrencies and move towards stablecoins. LUNA holders and investors moved to the stable coin of the ecosystem in which they believed: UST.
It is worth pointing out that UST and USDT are not the same. There is only one letter difference: UST is the algorithmic stablecoin of the Terra ecosystem. USDT makes reference to Tether, the largest stablecoin in the market that is backed by cash and cash equivalents.
That being said, there has been an incredible number of inventors that moved their funds to a stablecoin in recent months. One of these stablecoins was UST. Therefore, retail investors that needed to find a way to secure their funds found that UST was the stablecoin they trusted the most. But there have been other reasons to use UST. For example, some protocols offered an interest rate of almost 20% for depositing and locking UST. Hence, there was a clear interest in users to hold UST.
Market Crash and LUNA’s Effect on the Terra Ecosystem
We have described the way in which there has been a move towards stablecoins as the market started to move lower at the end of 2021 and early 2022. But what is this related to LUNA? As we mentioned before, UST was a programmable stablecoin. Every single time that there was a supply reduction in UST (due to lower demand), funds were converted into LUNA tokens.
That means that users could redeem their UST tokens (burning UST) and receive LUNA tokens (printing LUNA).
Here is our explanation in the article:
“If the value of TerraUSD (UST) falls below $1, then, there is a supply reduction of UST (transformed into LUNA). This supply reduction makes it possible for the UST to come back to its previous price level of $1. If the price of UST moves above $1, the network will simply increase UST supply to push its value once again towards $1.”
When the market started falling, there was pressure on LUNA. LUNA holders left the market towards stablecoin (not necessarily UST but stablecoins in general). This pushed LUNA’s price lower and lower. At the same time, there has been a contagion effect on the UST digital currency. Despite the larger demand for UST coins and stablecoins, many users saw LUNA’s price tanking and decided to take their money out of UST and get LUNA tokens instead (which could then be sold for fiat currencies or other fiat-backed stablecoins).
This created a situation in which new LUNA tokens were created in order to keep the UST peg close to $1. This has clearly failed.
As you can see in the chart above, UST lost its peg against the U.S. dollar (USD) on May 9th, pushing the price of UST close to $0.65. Thanks to the new LUNA issuance and UST’s supply reduction, it was possible to get the price closer to the peg at $0.94. May 10th seemed to be quite a positive day for UST and LUNA, showing that the algorithmic system behind this stablecoin was working as expected despite the recent volatility in the markets.
It is also worth pointing out that there was an increase in the speculative demand for UST. Usually, stablecoins offer a great arbitraging opportunity for traders that want to take the risk. But things did not go as planned. The market continued crashing despite the recovery experienced on May 10th.
As you can see in this chart, the price of UST was not able to keep its peg. Indeed, the coin then fell below $0.06. The peg was already non-existent and a large number of investors lost their savings if they were not able to take them away on time from this project.
But what happened to LUNA? LUNA has also crashed. In order to keep UST’s peg, the total supply of LUNA skyrocketed. Can you guess what happens when there is a sudden increase in the supply of an asset and a total decrease in the demand for it? The price went simply to zero, creating hyperinflation in the LUNA ecosystem.
On May 5, LUNA was traded for close to $85 per coin. Let’s not forget that the virtual currency reached an all-time high of $120 per coin. On May 9, just four days after being traded for close to $85, LUNA was already at $60. This was already a 30% price decrease that could have been normal for many cryptocurrency investors.
On May 10th, the coin continued falling and reached $30. 50% lower than the day before. By May 12th, LUNA was already traded below $0.01. Falling by more than 99.99% in just a week. This was one of the worst crashes in the history of the cryptocurrency market. Few other coins experienced similar patterns in the past, including the BitConnect (BCC) scam.
This is what LUNA’s chart looks like:
Repercussion in the Cryptocurrency Market
There have been several comments on LUNA, Terra, UST and the whole cryptocurrency market. Many investors believe that this was necessary and that the founder of the LUNA project should be responsible for what happened to the whole ecosystem.
Due to this recent price crash, there has been a large debate on whether governments should create regulations to control stablecoins and other digital currencies. It is clear that investors have been affected by the whole LUNA and UST algorithm, but are regulations necessary to protect retail traders?
It is possible to believe that a large number of VC investors that had a stake in LUNA left the market before the whole project imploded. Usually, the most affected investors are those that invest life savings and sums of money that they are not able to lose.
At the same time, and due to what happened to the Terra ecosystem, Bitcoin and other virtual currencies have been attacked as unstable and scams. However, they do not want to admit the difference between Bitcoin and LUNA. Bitcoin has been operating for over ten years and it became the largest cryptocurrency in the world without being hacked, exploited or attacked.
Instead, this was a great opportunity for traditional financial institutions to attack Bitcoin by comparing it to LUNA, and associating it with the whole Terra ecosystem. Scams have been around for many years, and not only in the cryptocurrency market. Due to the large innovation that takes place in this market, there will be many failed projects. That’s a normal thing. However, we should think about the people that have been affected by the destruction of value on the Terra ecosystem.
We started the explanation about what happened to LUNA with a brief summary of what users were doing with stablecoins. Basically, they were moving from volatile digital assets to stablecoins. Stablecoins are usually a safe place for investors that want to avoid volatility. In some cases, investors hold more value in stablecoins than in virtual currencies, as they feel their value is not at stake.
With what happened to LUNA and UST, we see that there have been several investors that relied on UST as a stable currency. They needed UST’s stability to avoid losing value in a falling market. In this case, a large number of retail investors with funds held in UST have been affected by a risky project.
This is why it is always important to make sure that users know where they are investing their funds and where they place their money. Failing to do so could result in their savings getting lost forever. Hence, this problem that affected LUNA and UST will have a deep impact in the market in the coming years.
Another thing that is worth taking into consideration is that when projects such as LUNA fail, there is less noise in the cryptocurrency market. Therefore, the projects that remain after a bear trend tend to offer better solutions and services to users than those projects that experienced a lot of hype during a bull market and then failed to remain as a reliable alternative.
It is now time for the cryptocurrency market to focus on new projects and continue building solutions that would make the whole ecosystem even better than what it was before. Learning from mistakes is important to move towards better things.
Next Steps – What Will Happen to LUNA and UST?
After the situation that affected both Terra (LUNA) and UST, there have been different proposals to solve the issue and move forward. One of the things proposed by Do Kwon, the founder of LUNA and UST, the Terra governance proposal number 1623 aims to rename the existing network to Terra Classic (emulating the fork that was experienced by Ethereum Classic (ETC) and Ethereum (ETH) after the DAO attack) and LUNA Classic (LUNC), and create a new Terra blockchain and LUNA (LUNA).
Hence, the proposal is to fork the network by creating a new LUNA token that would be born with a Snapshot on May 27, 2022 at block 7790000. This would allow the network to create a new project and move forward with the community.
Despite this proposed solution, there has been a large rejection from the cryptocurrency community, asking Do Kwon to take a step aside and leave the community. Until now, there have been 230 million votes with 61% of them voting “yes” for this proposal, 21.29% abstained, 0.42% voted “No”, and 16.61% voted “No with veto.”
The official proposal to help rebuild the Terra network reads as follows:
“Create a new Terra chain without the algorithmic stablecoin. The old chain to be called Terra Classic (token Luna Classic – LUNC), and the new chain to be called Terra (token Luna – LUNA) * Luna to be airdropped across Luna Classic stakers, Luna Classic holders, residual UST holders, and essential app developers of Terra Classic. * TFL’s wallet (terra1dp0taj85ruc299rkdvzp4z5pfg6z6swaed74e6) will be removed in the whitelist for the airdrop, making Terra a fully community owned chain”
There are different validators that have different voting power, and those validators are among the largest in the market. It would be very interesting to see what will happen with LUNA and its future. Will Do Kwon leave the community or will he work in order to recover it and rebuild it from scratch?
Now, will the community accept the new proposal or will it simply accept that the project has been destroyed and that there is no future ahead. It seems quite difficult for the Terra ecosystem to be born again. After attacks, scams and market crashes like this one it is quite difficult to be born again from the ashes.