The Rise and Fall of Terra (LUNA): A Crypto Tragedy

The chronicle of Terra (LUNA) is one of the most dramatic in the history of the cryptocurrency industry. People thought that crypto would transform the financial world and in a certain sense it did. However, Terra proved to everyone that not all crypto concepts are going to work. The rise and fall of Terra have been so fast such that many people are still shocked. New ones got big profits during the initial stages and others lost all their money at the time the system failed. In Nigeria and other parts of the globe, traders who had invested in LUNA had a bitter experience with respect to risk taking, greed, and trust in the world of cryptocurrencies.

Before getting to the narrative of it, it is essential to be acquainted with the nature of Terra (LUNA). Terra is a chain project which was established in South Korea by Do Kwon and others. The crux was to create stablecoins. Stablecoin is a crypto-currency associated with a real asset, most commonly the US dollar. As an example, a single unit of TerraUSD (UST), a stablecoin issued by Terra was intended to be worth one US dollar at all times. This enabled it to be used in payments, savings, and trading as it has the stability that people prefer even when the crypto has fluctuating prices.

LUNA was a sister token of UST. The design of the system is such that UST and LUNA co-worked. This had the effect that, in the event the price of UST fell below a dollar, individuals could incinerate LUNA (burn it) to mint additional UST and drive the price back up. In case the price of UST exceeded one dollar, individuals could ovae UST to obtain more LUNA, to stabilise the system. This is what is known as an algorithmic stablecoin model Unlike other stable coins that have real dollars in a bank account.

At first the thing went smoothly. The stablecoin began one of the fastest growing stablecoins worldwide. Billions of dollars were attracted to the platforms that started using it and many of them began to use it. One of the primary compliances was what was called the Anchor Protocol. Anchor was a savings site constructed on Terra on which you deposited UST and received an interest of up to 20 percent per annum. This interst rate was very high thus attracting many people including the Nigerians who perceived it as an easy money catch. In a nation, where typical bank savings would yield less than 5 percentage interest a year, the chance to get 20 percent in crypto meant heaven.

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All this saw the appreciation of LUNA, its sister token. At its highest in 2021 and even earlier this year in 2022, LUNA ranked among the top ten cryptocurrencies in the world in market value. It became very expensive and its cost started at just below a dollar in its initial days to above 100 dollars. The early-investors have turned billionaires Do Kwon gained much popularity and confidence on the social media, especially on Twitter. He also trolled those who did not believe in Terra as either being poor or ignorant. It seemed that many thought that he was developing a system that cannot be defeated.

In May 2022, it all collapsed. The start of the trouble could be seen when UST began dropping its peg against the dollar. This is as opposed to being 1 dollar, which resulted to it falling to about 98 cents. This was to automatically correct on the balancing system with LUNA. However this time, it was too much pressure. Large investors began selling UST in large quantities, and the algorithm could not cope. LUNA output had to increase in order to rescue UST. However, the price of LUNA quickly fell to nothing as more LUNA was released on the market.

The value lost was in excess of 40 billion dollars within one week. Those that invested in the savings in UST have lost nearly everything, as those coins supposedly fixed in the value became prices to several cents. The other party affected was LUNA holders who lost their investments when the number of tokens supplied soared up and the price went down. To some it became a nightmare. On social media, the accounts of Nigerians losing school fees, rent money or even their life savings as a result of having trusted LUNA and UST were shared. They have borrowed money to invest, and expect to pay back out of the profits, but were left with nothing.

The crash of Terra rattled the whole crypto industry. Other big coins that include Bitcoin also declined in value as many investors lacked confidence. Some firms that had poured in a lot of money in UST and LUNA went under as well. It also became apparent that algorithmic stablecoins were highly risky, regardless of how well they sounded on paper. Governments worldwide started to pay more attention to the crypto regulation claiming that such issues can harm not only investors but the economy as well.

The fall of Terra had important lessons to Nigerians. It indicated first that high returns are usually accompanied by high risks. The Anchor Protocol offered an interest rate of 20 percent that did not seem realistic and as it turned out was unsustainable. Second, it was a reminder to all that not all stablecoins can be really that stable. A speculative coin that is based on algorithms as opposed to actual reserves can melt down under pressure. Third, it revealed how dangerous the tendency to belief the hype and to trust social media activists without proper study and investigation could be. The fact that everyone was that talked about LUNA made many people invest in it with an ignorance of the risks.

The breakdown of Terra was also demonstrative of emotional investing. Others were ashamed and remorseful that they had lost their money. Some started to be angry with Do Kwon because they said that he turned out to be haughty and a swindler. Investors even committed suicide because of the losses incurred. It was indeed not a money-matter.

Do Kwon and his team have attempted to recover the project by launching a new edition of LUNA, but it was never as successful. In the meantime, the LUNA old that now goes by the name of LUNC (Luna Classic) is left as a banner of what has occurred. The investigations and trials have also been given to Do Kwon, and even now some people argue whether it was a planned attack of large investors or a flaw of the system itself.

The history of Terra (LUNA) will be written down as one of the greatest failures in crypto history. It shot up to the skies, it gave hope to many and plummeted down erasing billions of dollars in worth. To Nigerians, it is a stern warning about putting investments to risk. Regardless of how lucrative a certain investment may appear, we should read up on any investment, the risk involved and on no occasion should we invest funds that we cannot afford to part with.

The story of Terra is not something to do with technology or finance; it is to do with humankind. It demonstrates how greed, hype and overconfidence can be disastrous. In the process, it also imparts the lesson that one should be humble, cautious and responsible when it comes to investing. Individuals who lost their money will never get rid of the pain, but they can learn lessons and make better decisions in the future.