Luna token, on Friday, May 13, plummeted below $1, falling as low as $0.00006 in the later hours of the day. Amidst the Luna crash, Bitcoin regained about 8% of its value, bouncing from the $27K to above $30K. ayokinews.com reports
Luna has been trending in the crypto ecosystem for the past few weeks, following its historical fall from $83 to below $1. The blue-chip token lost more than 99% of its value for two consecutive days, leaving investors trapped and devastated.
“Red May” for Luna and Bitcoin Investors
The month of May has been far from good for crypto investors after Bitcoin plummeted from the $38K region to below $28K. The massive dip in the price of the leading crypto asset also affected other tokens. Luna, however, had a series of adverse circumstances that contributed to its unprecedented downfall.
Luna is linked to UST, a “stablecoin” of the Terra ecosystem. Luna token stabilizes the UST, and whenever the value of UST drops below $1, more Luna tokens are minted. At the same time, when UST goes above its $1 peg due to high demand or buy-pressure, Luna tokens are burned to balance demand with supply.
This price stability mechanism worked for the token for months until a few weeks ago. The volatility in the crypto space was too much, and UST could not bear the selling pressure. More Luna tokens were minted to balance demand with supply, but all to no avail. UST lost its peg and dipped to as low as $0.1, with LUNA suffering the effect of UST’s devaluation.
USDT, the largest stablecoin in the crypto ecosystem, also lost its peg in the past week but regained its 1:1 value with USD in little time.
The downfall of LUNA and UST has revealed that algorithmic stablecoins are not a haven for investors. Crypto users who want to invest in stablecoins will likely consider collateralized stables over algorithmic stables in the meantime.