Unveiling LUNA Coin: To Invest or Not to Invest?

Amidst the fluctuations of Bitcoin, Ether, and Dogecoin in recent months, investors are gradually shifting towards stablecoins like Terra (LUNA) for more predictable pricing.

Discovering the essence of LUNA Coin.

1. What is Terra (LUNA)?

Terra enables developers to construct customizable blockchains and DApps for various use cases, primarily focusing on DeFi, NFTs, and Web 3.0 applications using the Delegated Proof of Stake (DPOS) algorithm. The platform is linked with major blockchains including Ethereum, Binance Smart Chain, and Harmony.

UST is essentially linked to LUNA through a unique algorithm. Typically, a stablecoin is backed 1:1 by tangible assets like gold, USD, to ensure the price remains at $1.

The special algorithm utilizes smart contracts to autonomously adjust the price of the linked asset. In this scenario, smart contracts automatically burn LUNA tokens to mint new UST tokens, maintaining the UST price stability and reducing LUNA inflation (at least in theory). Therefore, in any situation, 1 UST can always be exchanged or minted for exactly 1 LUNA.

2. What is LUNA coin?

LUNA, or LUNA coin, is a cryptocurrency developed by Terraform Labs in 2018. Like other cryptocurrencies, LUNA coin operates on a blockchain network called Terra.

3. The Plunge of LUNA Coin by 96%

In early May 2022, the price of UST started a sudden decline and has yet to reclaim the $1 mark.

This abrupt price drop led to a substantial amount of LUNA being minted in an effort to stabilize the 'market flood' of UST, causing imbalance and resulting in a sharp decline in LUNA price overnight. LUNA, once among the top 10 cryptocurrencies, was 'ejected' out of the top 150 in the blink of an eye, with circulating supply tripling from around 350 million to over 1.4 billion in just 2 days.

Deposits on the DeFI Anchor platform also decreased rapidly. Anchor is the primary staking platform for UST, providing investors with a 20% return on investment based on UST tokens stored on it. Of the 18 billion USD UST in circulation, 14 billion USD is stored on Anchor.

Previously, there were numerous speculations about the 20% investment return ultimately causing significant issues. Therefore, it's no surprise that Anchor proposes reducing its profit margin to 4%. As prices begin to decline, investors will attempt to offload their UST on various markets.

Although Terra Labs had accumulated around 3 billion USD in Bitcoin in an effort to start building storage reserves, it proved insufficient to halt the downward price trend. The company was forced to sell the remaining BTC in its wallet. Eventually, both LUNA and UST lost their $1 value, potentially collapsing entirely with no chance of recovery.

As UST is a stablecoin, its stability is inherently tied to the volatility of the cryptocurrency market. When support for either of the two linked cryptocurrencies becomes an issue, there is always the possibility that either one or both will be affected.

4. Impact of Terra Luna and UST Incidents on the Cryptocurrency Market

Before the LUNA/UST incident, the cryptocurrency market was in a state of turbulence. Bitcoin prices dropped by tens of thousands of USD, reaching the lowest point in 2 years (though still over 10 times higher than the 2019 selling price). Ethereum, Solana, Cardano, and many other top cryptocurrencies also experienced a decline.

But that's not all. Concerns about the stability of other stablecoins, especially Tether, persisted. The world's most popular stablecoin broke the $1 rate for the first time in 2 years, indicating significant turmoil across the entire cryptocurrency market.

5. Should You Invest in LUNA Coin?

Financial experts caution investors to allocate only a small sum to cryptocurrencies due to the high level of risk, preventing the possibility of 'losing it all.' The potential for price volatility is substantial, implying that investors need to carefully consider and research before committing capital.

Especially when investing in LUNA, this coin comes with 'greater risks,' as investors may incur losses if Terra's stablecoins cannot 'maintain value.' LUNA acts as a volatility absorber with Terra's stablecoin, so the selling price of LUNA may 'correspond' to the selling price of Terra's stablecoins.

Although Terra's stablecoins, including UST pegged to USD, are not predictable in future performance of any asset and whether that asset can withstand market price fluctuations up or down.

On the other hand, more important than anything is for investors to be aware of the regulatory issues of a protocol before deciding to invest.

Thus, this article by Mytour has addressed the question of What is LUNA coin? Should you invest? Hoping that with this information, you will make an informed decision before deciding to invest in LUNA or any other cryptocurrency.