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Finally, the proposal has passed. Terra (LUNA) will enable IBC transfer. After activation, users can transfer their assets across all the network streams from Terra.
Terra launched its main net blockchain project in March 2019. It is based on the Cosmos-SDK blockchain. Do Kwon, the founder of this project, is also known for creating one of the largest crypto projects, ICON (ICX), in South Korea. It aims to provide cross-border payments at lower fees.
LUNA and Terra USD are native tokens of this blockchain platform. UST is pegged against the US dollar, and LUNA plays a role in maintaining the price of pegged UST and dollar. It uses a smart contract algorithm to keep the balance of the price.
The Terra validators allow to mint Terra USD when they think the price of Terra USD has risen than its peg, and it increases the supply and rebalances the price.
UST Lost Value
In the first and second week of May, LUNA’s price crashed and reached the 52-week low after a whale added $285 million of UST. As a result, UST lost value over the dollar, beginning LUNA’s downfall.
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After that, a rumor spread in the market that BlackRock and Citadel securities were involved in this crash, but the companies denied the allegations. Read our Terra coin forecast to know about the latest updates in the coin and price analysis.
Panic Attack
The algorithm is not sufficient to withstand a huge surge in trade. That is why people try to withdraw or sell UST, which puts pressure on the price of LUNA. As a result, due to an increase in supply and panic in the market, LUNA’s price crashed and went to near zero.
Terra is one of the popular cryptocurrencies, and it has the potential to recover in a very short span of time. The founder of Terra, Do Kwon, has announced a recovery plan to balance the price of pegged UST again. He is confident to ‘build our ways out of this crisis.’
What Will Be the Next Step of Recovery?
The proposal on Agoda kept the hope of the users when they announced to take snapshots of all UST holders before the de-pegged happened.
It stops people from transferring funds into another wallet. After that, only initial deposits into the Anchor were eligible for the refund. It frees up a percentage of the capital which can be redistributed to more users.
If the top 100 anchor has 90% of the fund, it may not be more than $1B. These addresses can be added to the redemption list. Now they will be allowed to swap their amount from UST to USDC or USDT at a 1:1 ratio, and it helps to keep the balance after including the whales.
Terra witnessed a million transactions a day, but it didn’t disrupt the technology. Moreover, it did not break any other Cosmos SDK-based blockchains. Do Kown was wrong when he thought Terra was invincible. Each blockchain has its ecosystem, different from similar blockchain technology.
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Cryptocurrency is a decentralized technology, so it is a lesson for the investors who take such huge risks with their hard-earned money. Only time will tell if LUNA will recover in the future or not.
We do not think it is the ideal time to invest in Terra (LUNA). Many people would think if it bounces back, it will provide a return like Bitcoin. But, it is not the right way to make an investment decision.
