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LUNA trading halt on major cryptocurrency exchanges and token delisting absorbed the entire capitalization of the Terra ecosystem
The $2 billion capitalization was not enough to withstand market turbulence. That’s the opinion expressed by ARK Invest fund analysts in their newsletter. As expert Frank Downing notes, the delisting and suspension of LUNA trading on major exchanges was enough to absorb the capitalization of the blockchain ecosystem.
Unlike a centralized stablecoin like USD coin (USDC), Terra’s developers sought to maintain the UST’s peg to the US dollar by using the LUNA token to offset changes in demand for UST. Downing notes:
“While this strategy worked in relatively stable market conditions, the massive sell-off reduced demand for all crypto-assets so much that the arbitrage needed to stabilize the UST price became unattractive to investors.”
The situation was later exacerbated when the $3 billion Luna Foundation Guard (LFG) reserve fund failed to restore UST’s peg to the U.S. dollar with capital. As Elliptic analysts estimated, LUNA and UST holders collectively lost about $42 billion over the week.
As a reminder, it was previously reported that bitcoin (BTC) volumes on LFG wallets dropped from 80,394 BTC to 313 BTC. In addition to bitcoin, the wallets of the organization also remain binance coin (BNB), avalanche (AVAX), terraUSD (UST) and terra (LUNA). The representatives of the fund said that they plan to use the remaining reserves for compensation. However, the methods are still not finalized, LFG added.
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