The ecosystem of Terra Luna suddenly crashed. It was a huge crash and had many consequences. It impacted investors and widely the crypto ecosystem. Various investors lost their whole life saving they parked in the stablecoin, Terra. Before the crash, it has a market cap of more than $18 billion. Visit https://www.bitprofit.software official website for trading.
Terra is the blockchain focussing to develop stablecoins pegged to fiat currencies like GBP, USD, and so on. Rather than making use of cash for backing and maintaining the peg of UST to a dollar, it utilized one algorithmic mint. It burns mechanism for helping to keep one UST to one USD.
The way of working is unique. Terra was built with two coins. The token used to stake is Luna. It is used for governance and also transaction fees on its network. It is also used for helping the second coin, UST to maintain its dollar peg. For minting UST, an equal amount of Luna must be burned and vice versa. For example, to mint 10 UST you will need to burn $10 priced Luna. The entire system is dependent on arbitrageurs UST burning. It happens if you trade it below one dollar and mint it if you trade above one dollar for gain.
So minting or buying a lot of UST will result in burning Luna. Luna will thus become deflationary. Burning or selling UST will be resulting to mint more Luna and thus it will become inflationary.
Nobody knows the complete story of the meltdown such as who caused it. No one wishes to predict it. But due to low pool liquidity, UST began to lose its peg to the dollar. It gave rise to de-pegging fear. So people started withdrawing UST from Anchor. It is the saving protocol in the blockchain of Terra to move out of the crypto market. Within a few hours, a lot of UST was sold on the blockchain. It caused huge minting for Luna. Luna’s price began to sink too. Short-sellers joined the game. It was red everywhere. For giving an idea of the situation, and how bad UST selling was, the order book of Binance was emptied completely. A lot was lost. Most of it was from different retail investors. It was a devastating expression when such horrible events were witnessed. But blaming will never help. We all can learn from it. We can sympathize with everyone who lost all their fortune in this crash.
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