Why Luna is Down?（Comprehensive analysis）
On May 12, a terrifying cliff-like crash caused a massive “slaughter” in the currency circle.
The protagonist of the event is the virtual currency Luna coin, a wealth password once known as “Motai(Star of China stock market) in the crypto circle” – its price used to be only $0.12, but it rose to $119.5 in April this year.
Its highest market value once reached 41 billion US dollars, more than 270 billion yuan, and its circulating market value once ranked fifth on the entire network.
However, just overnight, hundreds of billions of funds were wiped out, with a drop of more than 99.99%.
No matter what price you bought Luna at or how many Luna Coins you bought, now they are worthless.
According to statistics from cryptocurrency trading websites, nearly 400,000 users have liquidated their positions within 24 hours, with a single liquidation of up to US$10 million, and the total value of liquidation is nearly US$1 billion!
According to the Bloomberg Billionaires Index, some of the biggest names in the cryptocurrency industry have plummeted in value during this period.
Bitcoin investors Cameron and Tyler Winklevoss each lost 40% of their wealth, and Sam Bankman-Fried, founder of cryptocurrency exchange FTX, lost 50% of his personal wealth.
Coinbase founder Brian Armstrong’s personal wealth fell from $13.7 billion to $2.3 billion, an 83% loss.
And some media news has also made scary headlines…
“Cryptocurrencies are crashing (For now)”
Cryptocurrency investors panic amid market carnage:
“I’m going to lose my house.”
“Suicide is my only way out.”
How did is happen?
However, it is estimated that some people still feel a little confused… Luna, a cryptocurrency, is not as famous as Bitcoin, Ethereum, Dogecoin and other “big guys”, but it is also a famous currency. Why did it suddenly collapse?
To explain, let’s start with the concept of a “stable coin”.
As we all know, the price of most cryptocurrencies is volatile, which also makes it less easy to use cryptocurrencies as real “currency”, and it is more difficult to become a safe haven for investors.
Therefore, if you want the price to be as stable as possible, you must find a way at the very beginning of the cryptocurrency issuance.
There are a variety of stablecoins on the market, one of which is called TerraUSD, or UST.
The founder of this coin is Do Kwon, a Korean.
UST has tried its best to ensure that it has no price fluctuations since the beginning of its issuance, 1UST=1 USD-and the way to guarantee it is to use the Luna coin issued at the same time as UST as a “middleman” between UST and USD.
People exchange dollars for Luna and Luna for UST.
The circulation of Luna, calculated automatically by the code, is determined according to the price of UST.
For example, if the price of UST is less than $1, then users can exchange 1UST for $1 worth of Luna coins.
If a large number of users choose to exchange, then a lot of Luna coins will be issued, and the total amount of UST will decrease, and the supply will begin to exceed demand.
As a result, the price of UST slowly rose back to $1, while the price of Luna slowly fell.
Conversely, if the price of UST is higher than $1, the user will exchange Luna for UST, so the price of UST falls and the price of Luna rises.
With this mechanism, UST will theoretically remain $1 forever.
And the more people who use UST, the more the price of Luna coins will rise.
This logic can work theoretically. After the launch, UST has indeed remained at $1, which is very stable.
As a result, more and more people use it, and even in Korea, there are places that allow the direct purchase of physical goods with UST.
The more people who admit UST, the price of Luna coin also rises, even reaching $119.5 a…
But, this system has a big loophole.
UST and Luna, as two virtual currencies of one twin, its stability comes from people’s confidence in it.
The issuer Do Kwon even claimed that he bought 100,000 bitcoins and bought them back once the UST price dropped to ensure the stability of the UST price.
…but, what if you can’t keep it?
A few days ago, someone bought a large amount of UST and sold it at one time: the price of UST plummeted.
Because the price of UST has fallen too much, Luna coins are automatically issued in a terrifyingly huge amount according to the code calculation, tens of millions at a time, and the fall has caught people by surprise.
Subsequently, 100,000 bitcoins were automatically thrown out to save the market in an instant – causing the price of bitcoins to fluctuate slightly.
There is no causal relationship, but this shock is enough to dampen people’s confidence in the currency circle, so that they start to panic sell Luna, which is falling sharply.
The money in the crypto circle comes and goes quickly. When the avalanche starts, it is all about speed to see who can escape first.
Luna coins were issued in large quantities, and the supply exceeded demand, and the price began to drop.
Because of the lack of confidence in the Luna coin, people began to scramble to sell in large quantities, causing the entire Luna coin system to collapse.
The Luna coin collapsed, and even the price of UST with one twin collapsed, and the price fell again.
And as soon as the UST price fell, the code began to automatically issue Luna coins again.
As a result, the entire Luna coin system entered a death spiral.
Overnight, Luna coins went from 300 million in the market to 65 billion in the market.
The price of UST, falling below $0.21, is difficult to return to $1, and it is difficult to be called a “stable currency”.
As a result, all Luna coins became waste paper.
The faucet sank, and the hundreds of billions of funds returned to zero.
Those who used to hold Luna coins have lost everything if they didn’t run out.
- Assets that were once sold in millions are now only worth a few dollars.
“I’m not selling because I’m already down 99%.”
“If you have a ‘diamond hand’, don’t sell.
Well, welcome back to your waiter job. “
The Luna coin, which used to be $119.5, fell to $0.1, but if you really look for the bottom at this time, you will find that it can still fall to $0.0001.
“I wanted to buy the dip and it just kept going down.”
On UST’s reddit, many people posted that they lost a lot of money.
“My brain can not process this is happening for real”
Never saw a coin die in real time.”
Too many trageties…….
Sinner or biggest victim?
Yesterday, UST founder Do Kwon called the police, claiming that unidentified people had broken into his home.
At present, it is still unknown whether the other party is an investor in virtual currency – he pressed the doorbell to ask if Do Kwon was at home, and left the scene.
Although the other party did not make any offensive behavior, the police have taken it seriously and began to investigate the incident and protect Do Kwon.
After all… countless people lost everything because of him.
Countless people stepped into the currency circle because they saw the “wealth password” here.
Those myths about getting rich overnight and turning their fortunes thousands of times have become carrots hanging on poles, allowing waves of people to join the currency circle.
However, how many people actually make money?
Is this probability worth your whole life to try?
There is no way for a person to make money outside the realm of knowledge.
Investing needs to be cautious, please don’t make investments beyond your ability…
Mining is one of the most stable ways.