After a dramatic 90% market crash, LUNA, which is trading below $5, is now classified as a “cautionary item” by popular South Korean cryptocurrency exchange UpBit.
Investors are unsettled after the embattled crypto project – Terra’s flagshipstablecoin UST – has lost its peg to the US dollar.
In addition, Bithumb also issued a warning to its investors in dealing with LUNA. To protect customers, the exchange designated the cryptocurrency as an investment warning item.
LUNA’s fate hangs in the balance
According to crypto analytics platform IntoTheBlock, the number of transactions hit a new high, a massive 13x increase from the previous two days, as investors continue to rush to sell their UST positions. What does this mean for LUNA?
André Nakano de Melo, the CEO of TITANDAO, highlighted the current issue with UST and LUNA, which is that traders want to get both tokens out of exchanges “so that they can arbitrageopportunity by redeeming UST for LUNA”. He also added that “exchanges need to stop the outflows as they may not have enough tokens (UST and LUNA) for all traders looking to withdraw.”
When speaking to CryptoPotatosaid the CEO,
“Cold storage of tokens on exchanges does not mean that they actually have all the tokens available for redemption. It’s like a bank: we see a number in our bank account, but if everyone decides to withdraw the money on the same day as in a bank run, the bank cannot provide all the physical cash needed.”
Will LUNA follow IRON’s destructive path?
Terra’s debacle mirrors that of TITAN last summer, when a token backing stablecoin IRON called TITAN fell to zero as uncertainty choked the market. It later became known as the world’s first large-scale crypto bank run. Investors rushed to redeem IRON quickly after IRON’s peg to USDC was broken. This triggered a death spiral in the price of TITAN, which was used as collateral to mint the stablecoin.
The collateral damage to LUNA for the significant deviation from UST was epic. According to Melo, LUNA follows a similar death spiral as TITAN. He said,
“UST traded close to $0.2 today so it will be difficult to regain confidence. I believe LUNA will eventually go even further down as IRON stablecoin has been supported with 0.75 USDC while UST is only supported by LUNA. There’s not too much to fail in crypto.”
In times of market stress like these, it remains to be seen whether LUNA can demonstrate its viability.
Source: Crypto News Deutsch