LUNA Loses $5 Billion In 2 Days!

By CryptoChad | CryptoNews; The latest about the cryptoverse | 8 May 2022

Terra (LUNA) lost $5 billion between 7/5 and 8/5 dropping over 20% in value. What's the reason and how will it continue?

What's the downtrend's reason?

If we exclude the general reasons for the market's downfall and focus exclusively on the Terra ecosystem, we can see that there have been several recent changes. First of all, Terra announced cooperation with Evmos, an EVM compatible hub on Cosmos ecosystem. Thanks to this collaboration, Terra will be offering $3 million worth of incentives and $5 million of liquidity to 7 protocols.

Secondly, a whale dumped $285 million worth of UST affecting the stablecoin's value. This led to UST losing its peg with the USD, eventually settling at $0.98 for a while. It has currently regained its loss.

Finally, the UST supply drop led to an increase in LUNA's supply. We will explain this in the next headline.

Trading View chart, published today.

These changes culminated in a massive over 20% loss, the worst since November 2021.

What happened to LUNA and UST supply?

We should firstly have a deeper understanding of how the Terra ecosystem works. According to the documentation, the main feature of Terra is the stablecoins (notably UST) and their goal is to maintain the peg and a balanced supply and demand. Additionally, LUNA functions as collateral for UST's peg, because when UST increases in value users can trade LUNA, which is burned, to mint UST and vice versa.

While during the last months LUNA has been constantly burnt to maintain this balance, on May 8 UST supply dropped by 28 million while LUNA supply increased by 436,000. The increase in supply might have driven LUNA's price to lower levels in parallel with the reasons mentioned above.

Change in LUNA and UST supply, featuring today's data.

Conclusion

Like every other project in the crypto space, LUNA has its ups and downs depending on the general market situation and the blockchain parameters. The latter proved to be an important factor in LUNA's downtrend because it led to an increase in supply along with a decline in price. Nevertheless, we should also take into account that in a year of continuous value plummeting, LUNA recorded an ATH of $116 on 5 April.

This downtrend in value might be a great chance for people to invest in LUNA, especially after seeing the year's breakthroughs.