LUNA, UST issuer Terra restarts blockchain after temporary suspension
LUNA crashed more than 97% in the past few days, falling from nearly US$ 120 to between 1 to 2 cents on Thursday. Meanwhile, the price of UST also fell below 2 cents on Thursday.
Terraform issued more than 1 billion LUNAs into circulation in an attempt to reduce selling pressure seen since Monday. The supply more than tripled to 1.4 billion tokens on Thursday than 377 million days ago, and increased selling pressure on LUNAs, according to Messari data.
Since the Terra blockchain fell too low to ‘prevent governance attacks’, Terra halted its network and restarted at around 1:45 pm ET on Thursday after validators halted the network to prevent new actors from staking on it. Investors responded by liquidating their earnings on a Terra protocol for earning yields - Anchor. In the meantime, no transactions with UST, LUNA or Terra’s other tokens could be processed and holders had to wait for the blockchain to restart.
How do LUNA and UST work?
UST, Terra’s stable coin is supposed to have a 1:1 peg with the U.S. dollar. In its ecosystem, users can swap a LUNA token for UST at the fixed price of US$ 1 and vice versa. This works when the price of LUNA and UST differ from US$ 1. As such, when UST’s price rises over US$1, traders can use this arbitrage opportunity to swap UST for a higher valued LUNA. Traders are also continuously incentivized to buy and sell LUNA and UST to stabilize the peg and profit. This process destroys some LUNA from circulation and reduces its supply and increases its price.
The week’s slump pushed LUNA out of the top 10 cryptocurrencies by market capitalization down to rank 81st and valued under US$ 4 billion last week and down to US$ 720 million on Thursday.