The sudden nature of the Terra Luna crash sent shockwaves across the crypto world: in only a few days, the Terra UST lost approximately $40 billion of its value and became de-pegged. Before its collapse, Terra Luna was pegged against the US dollar and as of May 5, it traded at $80 to a coin. By May 7, the UST started falling on all crypto platforms across the world. On May 9, its value fell to 35 cents to the US dollar and rapidly continued to almost zero. The 40 billion dollar Terra Luna crash triggered a broad selloff on crypto markets globally, leading investors to liquidate their crypto assets and put them into safer alternatives such as gold. The effects were far-reaching and several exchanges temporarily put deals on hold while others delisted the distressed Terra Luna UST from their platforms. On Monday’s edition of Business Edge, Lekan Onabanjo takes on Terra Luna’s downturn with Ola Atose, founder and CEO of Koin Koin Exchange.
A rather salient point that a number of people, investors and crypto industry experts missed is the fact that contrary to popular belief, the UST created by Terra Luna wasn’t a stable coin in the sense of being tied to the US dollar (or any other currency for that matter). According to Atose, “It’s an algorithm-backed stable coin which means that it is not necessarily backed by hard currency at any given time; it is backed by algorithms which are dependent on real value.”
The conversation also touched on if Luna could have done anything to stop the de-pegging tide that is now threatening its existence. “There are a number of options they could have taken,” Ola Atose says. “The institutional investors in Luna began to sell off when the market came under pressure. They lost faith and pulled out heavily.” Instead, companies ought to have a cliff where investors are guaranteed a set return or simply not use algorithms and ensure that stable coins are backed by cash reserves.
Watch the episode in full above.