🚨 LUNA : From Myth to Crisis! 📉 The Crucial Lessons of Terra's "Death Spiral"

💥 LUNA : The Engine of Algorithmic Risk

LUNA (now LUNC for Classic) was not a token like any other. It was the pillar of the Terra ecosystem, serving as a buffer for the algorithmic stablecoin UST. Its role? To maintain UST at 1 $ via an arbitrage mechanism:

UST < 1 $ : We exchanged UST for LUNA (which increased the supply of LUNA).

UST > 1 $ : We exchanged LUNA for UST (which increased the supply of UST).

The Problem? The system relied entirely on the value of LUNA to guarantee UST.

📉 The "Death Spiral": May 2022

When massive selling pressure hit UST, the system panicked:

UST Drop \rightarrow Hyper-Inflation of LUNA.

To try to save UST, trillions of LUNA were minted.

This massive supply destroyed the value of LUNA (falling from 80 $ to $\sim0 $).

With a worthless LUNA, the guarantee mechanism failed. The infamous "Death Spiral" was triggered, wiping out billions.

🔄 LUNC vs. LUNA 2.0: The Legacy

After the collapse, the ecosystem split:

LUNC (LUNA Classic): The original token, left on the old chain. It is now a purely speculative asset, without an active stabilization mechanism.

LUNA (2.0): A new token launched on a new blockchain (Terra 2.0), free from the burden of the UST stablecoin. It is a classic governance token, distributed via an airdrop.

🔑 The Lesson for DeFi

The story of LUNA and UST is a brutal warning:

A system that uses a volatile asset (LUNA) as the sole collateral for a stable asset (UST) is fundamentally fragile in the face of massive loss of confidence.

Before investing, understand the actual robustness of the mechanism, not just the promise of yield!

🤔 Your Opinion?

Do you think the new LUNA 2.0 blockchain can ever regain the trust of the community? Comment below!

#LUNA #UST #Terra #CryptoCrisis