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Here’s an explanation of what happened with Project Terra from the beginning until now!

Here’s an explanation of what happened with Project Terra from the beginning until now!

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Answer Here’s an explanation of what happened with Project Terra from the beginning until now!

Over the past few days, the cryptocurrency world has been rocked by a sharp drop in the price of the digital stablecoin UST and its sister currency, Terra Luna.

The crash has rocked the broader cryptocurrency market, and other digital currencies including Bitcoin and Ethereum have also suffered.

Luna is now almost worthless.

In the past week alone, bitcoin has fallen by about 25% and by more than 50% in the past six months.

Some have compared Luna’s crash to the 2008 financial crash.

Once crypto investors panic, the chaos becomes bigger than ever.

It is worth noting that in Bitcoin Arabs, we followed the merits of the LUNA case in detail, from achieving record numbers and prices a month ago to its collapse and trading at $0.0004.

Read:A new report from Goldman Sachs leaked containing its view on crypto

Below is the LUNA chronology from top to bottom:

  • Cryptocurrency LUNA Reaches a New Record… Will it Continue to Grow in 2022?
  • Terra (LUNA) Project Overtakes Ethereum 2.0 in Staking
  • Total Closed Value of Terra Project (LUNA) Increases to $31 Billion
  • Cryptocurrency LUNA Price Drops 14% After UST Stablecoin Loses Its Correlation Briefly
  • Luna Corporation Sells $1.5 Billion of Bitcoin (Bought for $47,000 and Sold for $33,000)
  • Cryptocurrency “LUNA” collapses by 60% as its stablecoin “UST” drops below $0.7
  • Cryptocurrency LUNA crashes below $10 amid catastrophic sell-off
  • Terra co-founder’s wife seeks police protection after LUNA price crashes to zero
  • LUNA Update: Terra Founder Suggests a Solution as an Attempt to Restore and Fix the Project…Details Here
  • VanEck and 21Shares Suspend Terra ETPs After Recent LUNA Price Crash
  • In one month…the price of the digital currency LUNA collapsed from $116 to $0.0004
  • March 2022: Terra founder bet $11 million that LUNA won’t drop under $88

What exactly happened with Project Terra?

While there are some stablecoins, such as Tether, backed by traditional assets such as the dollar or gold…

Read:The founder of Binance is optimistic about the future of cryptocurrency

Others rely on sophisticated algorithms to keep their stablecoins pegged to the dollar.

TerraUSD or UST is one such algorithm-based stablecoin.

The coin attempts to maintain the same value as the dollar by using a complex swing mechanism with a related cryptocurrency, called Terra Luna (or just Luna).

While 1 UST is always assumed to be exactly $1, the value of Luna can fluctuate.

In essence, UST uses LUNA as a counterweight to maintain its peg to the dollar.

Here’s how it works:

Burning or destroying a UST enables an instrument or create a Luna and vice versa.

Burning a UST grants one dollar of Luna, and burning one dollar of Luna grants one UST.

Meaning it’s like a hammock, with UST on one side and Luna on the other.

Let’s imagine that the value of the UST drops a little bit, so it is now $0.99.

Since 1 UST can always be exchanged for $1 from Luna, smart people will immediately take the opportunity to buy something worth $1 for 99 cents, and make a small profit of 1 cent.

Read:Seizures of $ 2.3 million destined for money laundering and transfer of cash to Bitcoin in New York

So the UST of the Luna instrument can be burned and earn a profit.

As more and more people who hold UST are trying to make a cent in profit by burning it for Luna, the supply of UST goes up until its price reaches $1.

Now imagine that many people are taking advantage of arbitrage that the price of 1 UST actually rises to $1.01.

Now this means that people who keep Luna realize that if they burn $1 worth of Luna, they can get UST and make an extra profit.

So as more and more people burn their LUNA to create a UST, the supply of UST increases and its price drops until it reaches $1.

So what happened to TerraUSD and Terra Luna this week?

Basically, the balance between UST and Luna has been broken.

The biggest reason most people keep their UST was because of something called the Anchor Protocol.

Think of Anchor as a private UST savings account, but it pays 20% interest, which is a really good deal for a savings account.

In the past months, it made sense to simply put UST into an Anchor account and watch the 20% return come in, especially because there isn’t much you can actually use crypto for.

Until recently, on Saturday, May 7, 75% of the total UST traded in Anchor was deposited, according to Coindesk.

But in March of this year, Anchor issued a decision to replace the 20% rate with a variable rate.

Over the weekend, large amounts of UST were withdrawn from Anchor, alarming traders and prompting them to sell their UST and Luna coins, The Wall Street Journal said.

Another group of investors used a crypto project called Curve Finance to exchange UST for other stablecoins.

People started heading to the exits by burning UST opposite Luna.

The supply of LUNA inflated, causing the price to fall.

In other words, the price of LUNA has been pushed off the swing.

As more and more people try to get rid of UST, the balancing mechanism stops working, UST malfunctions, and so does Luna.

The UST stablecoin fell to $0.14 on Friday.

The LUNA became almost worthless, dropping its price to less than a cent and still doing so today.

Of course, from our side in Arab Bitcoin, we will continue to follow the project and its progress until we confirm its path in one of the two directions, either death completely or returning to the right path.

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