Terra Luna crashes 99%, will it fall beyond 100%? Find out here

It is a goodbye situation for cryptocurrency Terra Luna which is only seeing its price hit lower and lower this past week. The token is currently trading 99.57 per cent lower at $0.01503 at 8:40 pm IST, according to the CoinMarketCap data.

Terra Luna crashed amid the TerraUSD, the so-called stablecoin, de-pegging fiasco and has been falling into the abyss ever since.

Stablecoins are digital tokens pegged to the value of traditional assets, such as the US dollar. They are popular in times of turmoil in crypto markets and are a common medium of exchange, often used by traders to move funds around and speculate on other cryptocurrencies.

Looking at the battered situation, Terra Luna's co-founder Do Kwon said that it will be backed by reserves in future in an attempt to steady the cryptocurrency by adjusting its complex pegging mechanism.

Kwon, the co-founder of the company behind the token, Terraform Labs, announced a "recovery plan" in a series of tweets, saying the company would seek additional outside funding and "rebuild" TerraUSD so that it is collateralised. That means it would be backed by reserves rather than relying on an algorithm to maintain its 1:1 dollar peg.

ALSO READ: Is karma biting Do Kwon? Terra Luna nosedives 98%

"A bailout was to be expected, and UST essentially becoming collateralised is the only outcome that makes sense," said Joseph Edwards, head of financial strategy at crypto firm Solrise.

Terraform Labs, which says on LinkedIn it is based in Singapore, and its non-profit affiliate Luna Foundation Guard, which supports the Terra ecosystem.

Commenting on the demise of the token, Charles Tan, Chief Marketing Officer at Atato, a licensed MPC crypto custodian wallet, said, "The current LUNA fiasco is a great learning opportunity for the global crypto community as it has revealed the weak links within the algorithm-based stablecoin ecosystem. It is important to note that Terra network is one of the most tech-savvy in the crypto industry and Terra UST is a pioneer in the algo-based stablecoin race."

"The LUNA crisis reiterates the fact that crypto as an asset is highly volatile and investors need to trade with caution with a long-term horizon of 2-3 years to stay profitable. Luna Guard Foundation, with a reported massive Bitcoin reserve, is trying hard its level best to stabilize UST once again to gain investors’ confidence. As we speak, LUNA is trading below the $1 mark and it may take a substantial period for LUNA to recover from this, considering the many projects building on LUNA will also be affected," he added.

What is Terra Luna? 

Terra is a blockchain protocol that supports price-stable global payment networks by using stablecoins backed by fiat currency. Terra, according to its white paper, combines the price stability and widespread adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC) and offers rapid and low-cost transactions. 

How are Terra Luna and TerraUSD related? 

The LUNA token and UST are mutually dependent, as the Terra ecosystem's success is predicated on the adoption of UST as a stablecoin. LUNA invests in UST and is burned as demand for UST increases. On the other hand, if UST is viewed as unstable, the value of LUNA may fall. 
 

(With inputs from Aakanksha Chaturvedi)