The Luna token – brought to crypto fans everywhere through what’s known as the Terra Network – has taken a massive plunge and is trading for about 45 percent less than where it was just a few weeks ago. The currency is one of many suffering at press time as the crypto space continues to shed value like a lizard shedding its skin.
Oh, How the Luna Token Is Suffering!
The Luna token’s drop occurred shortly after its fellow stable currency Terra USD – often called the “sister” of Luna – lost its ties to the U.S. dollar for the second time in a row. The two losses occurred over a relatively short period of just a few days, and the asset is having difficulty maintaining its stable coin status.
The Luna Foundation Group (LFG) made the announcement of the token’s demise in a tweet, commenting:
Over the past several days, market volatility across crypto assets has been significant. The market turmoil is also reflected by the past week’s uncertain macro conditions across legacy asset classes. Per the LFG’s mandate, the LFG will proactively defend the stability of the $UST peg and broader Terra economy, especially under volatility and the uncertainty of macro conditions in legacy markets.
Terra Labs co-founder and CEO Do Kwon also threw his two cents into the mix. He commented on the volatility that we’re all witnessing in the digital currency space and says it’s unlike anything we’ve ever seen before. Things have gotten so bad and price swings have become so unpredictable that we are now seeing many alleged stable currencies take on forms similar to that of bitcoin and Ethereum, which are known for going up and down quickly and without warning.
For the first time, you’re starting to see a pegged currency that is attempting to observe the bitcoin standard.
One of the big differences between Terra USD and other stable currencies is that other assets are tied to USD or other forms of fiat like the euro or the yen. Terra USD, by contrast, is not tied to USD, but rather has its value set by a computer algorithm.
How to Keep the Asset in Check
When Terra USD falls below one dollar – which is what each unit is currently pegged at – users can “burn” tokens and thus remove them from circulation. They then earn $1 of Luna to replace the burned unit. When the price of Terra jumps beyond $1, Luna owners trade their tokens in for Terra respectively. The process exists to ensure that Terra USD’s value never falls out of control.
A few weekends ago, many traders found themselves selling Terra units like crazy as the currency fell drastically below the $1 level. This forced the Luna Foundation Group to step in and pledge further Luna tokens as a means of keeping things in check.