Consequences of Failure in Crypto (A Terra (LUNA) Example)
The world has heard about the failure in the crypto space that is the implosion of Terra (LUNA).
Recently, the algorithmic stablecoin, UST, de-pegged from its $1 value. This led to massive outflows of investors’ capital as they lost faith in the system.
As UST is linked to its sister token, LUNA, that too took a hit. The high volume of investors selling off UST led to hyperinflation of LUNA. As a result, LUNA currently trades at a fraction of its average price at $0.0002048.
Some argue that a deliberate attack by a whale may have led to the implosion of the Terra ecosystem, while others say that it is a natural flaw in the system. Regardless, Terra’s ecosystem is virtually dead.
Cryptocurrencies Have Always Been A Subject of Attack
The unregulated space of cryptocurrencies makes it a particular target of regulatory bodies such as the Securities Exchange Commission (SEC) and other similar governmental bodies.
The almost daily occurrence of scams and rug pulls are not helping crypto’s reputation either.
As governments are finding ways to regulate it, watchful eyes are on the crypto space, trying to find every single flaw and mistake to be used against it.
Furthermore, governments are pushing their agenda of control by creating Central Bank Digital Currencies (CBDCs) and would only need an excuse to implement it in replacement of cryptocurrencies.
The implementation of CBDCs is already underway.
China has begun rolling out their version of CBDCs called the digital yuan. At the same time, they have outrightly banned bitcoin and other cryptocurrencies by removing exchanges and websites discussing the technology.
In the US, Janet Yellen has called for regulations on stablecoins after the Terra meltdown.
President Joe Biden has also released an executive order on a comprehensive report of the implications of CBDCs, which shows that the government is seriously considering the proposal.
The rest of the crypto markets felt the impact of the implosion. Bitcoin fell to $29,000 while many altcoins were down 10–30%. As a result, $200 billion was wiped off the crypto market in 24 hours.
USDT, also known as Tether, briefly de-pegged as investors sold off due to fears of a similar implosion. The stablecoin has successfully maintained its peg of $1.
The crypto markets have seen terrible days, but this event is particularly memorable. Many individuals who lost their life savings are ordinary people who fell into the promise of a 20% return.
Not only that, the stablecoin was one of the top three stablecoins in the crypto market. Naturally, therefore, it wields a lot of influence.
The sheer amount of money lost and being the behemoth that UST was, made the failure so much more painful.
Thus, I would not be surprised if regulators use this event as an example of the risks involved with cryptocurrencies and, therefore, push for regulation of the space.
It might just be the reason to implement CBDCs, severely weakening the crypto market.
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The UST situation could accelerate talks of a CBDC in the US Even if lawmakers agree on establishing a CBDC, there is…
The Terra (LUNA) incident showed us that cryptocurrency technology is not a perfect science. There are still loopholes and flaws that can be taken advantage of.
As technology matures, such occurrences may be less likely.
Ultimately, we have to ask ourselves why we want cryptocurrencies in the first place. For example, I wish for anonymity and a decentralised platform for my finances; that is why I will continue supporting cryptocurrencies.
What about you?
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