LUNA and UST History
The South Koreas-based Terra Labs created TerraUSD (UST) and Luna (LUNA) as the native tokens of its blockchain-based project, Terra Network.
The Terra ecosystem on which the two coins were built increased exponentially from $180 million to $15 billion between the beginning of 2021 to March 2022.
Recently, though, the coins have suffered a hit. They have depreciated significantly, dropping up to 95% of their values before the crash.
Let’s take a look at the coins’ history.
Daniel Shin and Do Kwon co-founded Terra (LUNA). While the former is an experienced entrepreneur with diverse interest that includes a startup incubator, Fast Track Asia, and a local e-commerce platform, TMON (Ticket Monster), the latter is a former employee of Apple and Microsoft, acting as their software engineer at different time.
Kwon also was a one-time CEO of Anyfi, a started to provide decentralized solutions for wireless networks. His year of experience in the business and tons of achievements got him a deserved place on Forbes 30 Under 30 in the Most Successful Entrepreneurs category.
In 2019, the duo launched the project’s mainnet which was designed to combine the fiat currencies’ price stability with blockchain technology to stabilize the global payment systems.
The founders’ mission was to use stablecoins, cryptocurrencies pegged at the same price as fiat currencies, to drive a peer-to-peer electronic cash system.
They achieved this goal through UST whose value was close to the $1 mark and LUNA, which was pegged at exactly $1.
What is LUNA?
Terra Labs created Terra (LUNA) as a cryptocurrency asset to help TerraUSD sustain its price level. Its supply is determined by the Terra stablecoins in circulation, making it one of the crypto assets without a maximum supply quantity.
Although it doesn’t have a supply cap, Luna’s supply keeps decreasing as it is burned as a prelude to converting it into Terra stablecoin.
The LUNA token experienced a tremendous appreciation over the year. It started trading at $0.66 at the beginning of 2021 and hit $89 at the end of the year. On March 9, 2022, it traded at $104.58, its’ biggest market value at a time when most coins crashed together as the global economy crumbled, thanks to the Russia vs Ukraine crisis.
The appreciation didn’t go unnoticed as the coin leapfrogged many other cryptocurrencies and booked a place as the fourth-largest stablecoin with a market capitalization put at over $15 billion.
How They Fell
Recently, though, LUNA and UST have depreciated considerably. Between May 4, 2022, to May 12, 2022, LUNA fell from its all-time-high of $87.96 to an all-time low of $0.004. From ranking as one of the top 5 cryptocurrencies, it dropped to the 267th digital coin, until its production was eventually halted a few days later.
As LUNA kept depreciating, it hit a worrisome low of $0.00001675, dropping out of the top 1,000 cryptocurrencies by market capitalization on CoinGecko.
A couple of days later, the team resumed block production on its Terra blockchain, fuelling speculations that LUNA may be on its way to a comeback. On May 14, it reached a new peak of $0.0007658, although it couldn’t sustain the comeback for long as it eventually hit another low of $0.000166 less than two weeks later.
UST didn’t fare better. Although it was touted to remain at its fixed value of $1 irrespective of the market, it couldn’t sustain that value and eventually fell below $0.30 at a time. The depreciation went on unabated until the Binance cryptocurrency exchange temporarily stopped cryptocurrency investors and traders from trading the duo of UST and LUNA on May 21, 2022.
As of the time of writing, UST is traded at $0.05131 per unit while LUNA goes for $1.84. This is in contrast to the original plan to keep UST at $1.
The connection between the two implies that UST’s performance will always have a profound impact on LUNA. Once new UST tokens are minted, LUNA is burned.
For instance, when UST appreciates to more than $1, cryptocurrency investors will be encouraged to trade $1 worth of LUNA in exchange for a UST. Since the transaction is more than a dollar, the trader makes an instant profit.
As the number of traders who are taking advantage of that profit-making transaction increases, the number of UST in circulation will increase significantly and the price of UST will depreciate in response.
The same rule applies to LUNA. When UST depreciates to below $1, crypto investors may trade a UST at that price for $1 worth of LUNA and make an instant profit on the transaction. Some UST will then be taken out of circulation and in response, UST will appreciate.
Since the UST peg has been broken, LUNA’s price has taken a hit with no signs of appreciation in view.
On May 16 2022, Kwon proposed the Terra Ecosystem Revival Plan 2, a plan designed to save the Terra ecosystem.
According to him, “The Terra chain as it currently exists should be forked into a new chain without algorithmic stablecoins called ‘Terra’. Both chains will coexist.” Kwon’s plan was to create another Terra chain without the UST while the LUNA token remains the Terra chain’s new cryptocurrency.
Kwon saw the need for a revival because the coins reserve dropped to 313 to over 80,000 Bitcoin. The reality moved him to consider preserving the Terra blockchain rather than trying to save the stablecoin.
The new proposal to create a hard fork of the Terra blockchain wasn’t approved by a significant percentage of the preliminary voters with 90% voting against it.
However, since the result of the poll isn’t binding on the team, the cryptocurrency community is awaiting Kwon and his partners’ response to the vote of disapproval and their attempt at rejuvenating the crashing tokens.
LUNA and UST have come a long way. Their interdependence has continued to affect their values in the crypto market. Time will tell how far these tokens can go: whether they will be back at the summit where they currently took a spot or go into extinction.