How did Terra Luna collapse?

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Terra is a blockchain protocol that uses stablecoins backed by fiat currency to support price-stable global payment networks.

According to the white paper, Terra combines the price stability and widespread adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC) and provides quick and low-cost transactions.

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The LUNA token and UST are mutually dependent, as the success of the Terra ecosystem is dependent on the adoption of UST as a stablecoin.

LUNA invests in UST and is burned as UST demand rises. However, if UST is deemed unstable, the value of LUNA may fall.

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How did Terra Luna collapse?

In response to the token’s demise, Charles Tan, Chief Marketing Officer at Atato, a licensed MPC crypto custodian wallet, stated,

“The current LUNA debacle is a fantastic learning opportunity for the global crypto community because it has exposed the weak links in the algorithm-based stablecoin ecosystem.

It is worth noting that the Terra network is one of the most technologically advanced in the cryptocurrency industry, and Terra UST is a pioneer in the algo-based stablecoin race.”

The LUNA crisis highlights the fact that cryptocurrency is a highly volatile asset, and investors must trade with caution and a long-term horizon of 2-3 years to remain profitable.

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