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Terra Death Spiral: What You Need to Know
Terra Luna is collapsing.
Terra Luna might have destroyed the crypto markets.
Let’s talk about it.
Terra Luna is an algorithmic stablecoin. It’s pegged to the token UST — not to be confused with USDT (Tether) — which is always supposed to be stable at $1.
Yesterday UST was not at $1. It was .80 for the better part of the day. And as I’m writing this UST has still not recovered to $1 (it’s at .92).
The upshot is Luna’s algorithm for keeping UST at $1 couldn’t handle the selling pressure and therefore crashed the price of both assets. Terra Luna fell more than 60% and Binance even had to temporarily suspend Luna and UST withdrawals citing network congestion.
The ramifications of this are insane.
Why would Terra not go to zero?
Two things should terrify you about what happened with Terra Luna:
- Terra Luna is a big-cap cryptocurrency and almost no token at its market cap has ever fallen over 60% in one day
- Terra Luna’s collapse will definitely result in stricter crypto regulations, especially amongst stablecoins. I could definitely see a future where stablecoins aren’t allowed to exist at all because of this.
