The UK parliament member, Matt Hancock urged the issue of Bitcoin’s necessity of having an open [regulatory framework](/news/article/crypto-tax-uk) that resulted in a crypto analyst positive stance on the sector.

Hancock recently revealed that even though the crypto market did go through a huge sell-off, that hasn’t shaken his faith in the sector. 

Regarding the recent crash of the cryptocurrency terra (LUNA) (UST), he said that this was just something that happens even in the mature markets.

“The crash of Luna and the pressure on other stablecoins serves as a reminder that cryptocurrencies are still currencies and the age-old rules of finance still apply,” he opined and compared the situation with the dot-com bubble crash in 2001.

“The underlying technology is so powerful … Just because the dot-com bubble crashed in 2001, we didn’t discredit the internet as a technology,” he concluded.

“No country can stop this revolution. We can only choose whether it happens on our shores or happens to us from elsewhere,” he commented and added that the UK can succeed only if and when it decides to embrace the new technology.

This also means, said Hancock, that the government has to be able to adjust to crypto because, in liberal governments, no one should tell “people what they can and can’t do with their money”.

“The job of the regulators is to make sure there is high-quality information and that the market functions effectively. What remit does the state have to tell them what they can and can’t invest in? I think that’s incredibly patronizing, ”Hancock asserted.

Aligned with Hancock’s sentiment, the crypto analyst Madeleine Hume also believes that [crypto integration](https://www.morningstar.co.uk/uk/news/220381/5-charts-on-crypto%2339%3bs-past-present-and-future.aspx) is crucial. “Rather than a swift takeover, we expect that integration with existing systems across financial services and other sectors will likely determine future adoption rates in the space,” she commented.

Hancock is no stranger to being a [crypto advocate](https://www.monitalks.io/news/article/crypto-tax-UK). He is famous for his claims that crypto regulation can be fantastic for the growth of the overall economy but also for making financial systems more transparent and reducing crime. 

“We must understand and harness the potential of new technologies, not fear and avoid their disruptive power,” he said.

Still, he admitted he hasn’t invested in cryptocurrencies himself explaining that he wanted to “speak freely” about it without fear of having a conflict of interest.


Crypto analyst view correlates with UK parliamentary sentiment

The [Terra Luna](https://coinmarketcap.com/currencies/terra-luna/) collapse wiped billions from the crypto market. Will it recuperate?

Visualise the moment when your entire investment is wiped out suddenly. That's the harsh reality for millions of investors in the Terra Luna cryptocurrency. Its value dropped dramatically from more than $100 per coin to less than $1, losing 99% of its value within a few minutes and sending huge repercussions around the whole crypto world.

So, what's the reason behind Terra's Luna cryptocurrency price collapse, and what impact will it have on the crypto market?

## What is Terra Luna?

Terra Labs, a South Korean blockchain development company, designed the project Terra network, which comprises two cryptocurrencies: TerraUSD (UST) and Luna (LUNA).

The Terra network authorises blockchain developers to make custom blockchains and DApps for a broad range of use cases, but typically operates on Delegated Proof of Stake (DPoS) algorithm. The network focuses on DeFi, NFT projects, and Web 3.0 apps. It's linked to other significant blockchains, including Ethereum, Binance Smart Chain, and Harmony, and is deemed a powerful player in the DeFi world.

Terra network possesses two native tokens, UST and LUNA, and both have different functions. UST is a stablecoin, implying its value is pegged to $1 and is utilised to risk or shift tokens when markets become jerky. In contrast, LUNA is a more tradable investment whose price fluctuates depending on market circumstances.

Both coins are intrinsically linked, with UST pegged to LUNA using something named "algorithmic pegging". Typically, a stablecoin is funded 1:1 with a tangible asset, like gold or dollars, ensuring investors that the value will stay at $1 (or reasonably close).

Algorithmic pegging operates a smart contract to alter the value of the linked assets automatically. In this case, the smart contract automatically uses LUNA tokens to mint new UST tokens, maintaining the UST price stable and LUNA deflationary (theoretically). So, no matter the market conditions, 1 UST can consistently be redeemed for or coined for exactly 1 LUNA.

## Reason Behind Terra Luna Collapse

The sudden Terra Luna collapse took place in early May 2022, when the value of UST unexpectedly began falling from its $1 peg.

The unexpected price fall caused a massive number of LUNA to be minted to stable the UST value, saturating the market with LUNA tokens. This pushed the price down and smashed LUNA's price overnight. Indeed, LUNA moved from a top 10 crypto to descending outside the top 150 overnight. Its circulating market supply tripled from about 350 million to more than 1.4 billion in just two days.

Terra Labs had assembled around $3 billion in [Bitcoin](/coins/btc) to begin building a reserve. It wasn't nearly sufficient to stop the market drop. The company was compelled to vend its resources (against a Bitcoin market that has also lost significant value over the same course). Ultimately, there was no more $1 value of LUNA for every UST, implying both cryptos would drop altogether without any clear path to recovery.

UST is an algorithmic stablecoin. Eventually, its stability is naturally related to market volatility. When support for either related cryptocurrency becomes a problem, there is always a possibility that one or both will collapse and witness a market fall.

Now, with the value of UST still not redeemed to its $1, Terra is trying to raise the supply of LUNA to boost the burn rate and saturate the market with coins, putting more downward pressure on the crypto.

## Will Terra Luna recover?

Amid the market crash, Terra Labs CEO Do Kwon presented a Terra Luna recovery strategy to stabilise the present crypto destruction. According to his plan, he will work to stabilise the Layer-1 ecosystem.

The strategy is:

•	A new LUNA with a supply of 1 billion will be spread across the community
•	40% of this LUNA will be given to existing holders before the depeg
•	A further 40% will be given to present UST holders
•	10% will go to current LUNA holders
•	the last 10% will go to a community pool for development

This recovery strategy prioritises the Terra Layer-1 as Kwon and the community strive to protect the broader ecosystem.
Kwon said Terra Luna needs a growing community to make its blockspace valuable again.

"The only way to do this is to make sure that token holders before the attack commenced, the most loyal community members and builders, stick around to keep providing value," he added.

Right now, it is just a proposal to recover the Terra loss. The crypto market is highly volatile and we are left to wait and watch until the market stabilises.
 



Terra Luna Collapse: Why Did It Happen

The value of Luna plunged sharply on Wednesday, from $6.75 to a little over $1. As of Thursday afternoon, the currency was worth only $0.02. The sibling token of the controversial stable currency [TerraUSD](https://coinmarketcap.com/currencies/terrausd/) is now effectively worthless.

According to Coin Gecko statistics, Luna fell to $0 on Friday, a remarkable decline for a cryptocurrency formerly valued at more than $100. 

TerraUSD, sometimes known as UST, is designed to be tied to the US dollar one-to-one. When the UST decoupled from the dollar earlier this week, values plummeted. UST has lost its peg and was trading at 12 cents on Friday, according to statistics.

Traders prefer to acquire currencies such as [Bitcoin](/coins/btc), [Ether](/coins/eth), and [Dogecoin](/coins/doge) using digital assets tied to the dollar since only the price of the crypto asset changes when they buy or sell. 

## Stablecoins Rise in Popularity

Stablecoins enable quick trade without the lengthy settlement timeframes associated with government-issued currencies, which might take days. If a person wants to sell Bitcoin and immediately lock in their dollar winnings, they might do so by purchasing a stablecoin on major cryptocurrency exchanges.

UST and Luna are connected. UST is referred to as an algorithmic stable currency, which means there is an expectation that its $1 peg will be managed by the underlying code. This is fundamentally different from other stable currencies, such as tether and USDC, which are backed by real-world assets like bonds. UST has no real-world reserves. 

Algorithmic stablecoins are not backed by assets, instead relying on financial engineering to maintain their ties to the dollar. Previously, the algorithmic stable currency TerraUSD kept its $1 price by depending on traders to perform an arbitrage function between Terra and Luna values. 

When Terra went below the peg, merchants would "burn" the stablecoin, taking it out of circulation by swapping TerraUSD for $1 worth of fresh Luna units. This move lowered TerraUSD's supply and increased its price. When the value of TerraUSD soared beyond $1, traders might burn Luna and generate new TerraUSD, boosting the supply of the stablecoin and bringing its price back down to $1. Traders said a series of significant withdrawals from Anchor Protocol, a crypto bank established by developers at Mr. Kwon's business Terraform Labs, was the cause for the decline. It began during the 7-8 May weekend and spiralled out of control the following Monday. Digital currency investors use such services to earn interest on their coins by lending them out. 

The Anchor platform held most of the stablecoin's supply. According to the platform's website, investors had invested more than $14 billion in TerraUSD in Anchor by early May. Large trades eroded TerraUSD's $1 value during that May weekend. 

Because of the volatility, many investors withdrew their TerraUSD from Anchor and sold the coin. As a result, additional investors withdrew from Anchor, causing a chain reaction of more withdrawals and selling. TerraUSD deviated from its dollar peg as the supply-demand equilibrium was disrupted. Luna, its sister coin, has also seen its value fall. The crypto community speculates that an anonymous trader triggered the run as part of an "attack" on the stable currency. 

## Anchor TerraUSD Deposits Drop

According to the company's website, Anchor's TerraUSD deposits had dropped to around $1.6 billion on 13 May. The Terra blockchain, which underlies UST and Luna, has also stopped processing transactions twice in less than 24 hours, adding to the problems. Before the catastrophe, $14 billion in TerraUSD was placed in Anchor. There is less than $200 million remaining.
  
The Luna Foundation Guard may be running out of funds as well. Its crypto reserves are down to less than $90 million, and it has no Bitcoin in its wallet. The breakdown also impacted the Terra blockchain, which was momentarily unavailable on Thursday "to avoid governance assaults".

Meanwhile, Binance, the world's largest cryptocurrency exchange, delisted UST and Luna on Friday. Many traders have sold, believing that the assets would not be able to recoup their losses. Even Bitcoin fans have expressed concern. 
 
Nonetheless, the collapse spread. Luna's Bitcoin hoarding spread to other cryptocurrencies. Traders anticipating a TerraUSD breakdown appear to have sold Bitcoin, leading to the token's falls. This, in turn, undermined demand throughout crypto markets, which lost more than $400 billion in market cap as several tokens, including Bitcoin, Ether, Cardano, and Solana, fell by more than 20%.

The incident has also drawn policymakers' attention back to the absence of regulation around stable coins and the larger cryptocurrency sector. As TerraUSD broke from its peg on 10 May, Treasury Secretary Janet Yellen reiterated her appeal for Congress to establish laws governing stable currencies.


Why did TerraUSD and Luna Crash?

Early December was a brutal period for the crypto market, as it crashed substantially. While it has recovered since, crypto assets like BTC, MANA, SAND and GALA are yet to hit the highs they experienced in November. 

Causes include the volatile period for traditional financial markets and skewering inflation.

There is a silver lining, though. Terra (LUNA) surged in price, and Terra-TVL grew considerably in the past week or so. Why are people choosing Terra Luna crypto stablecoins over other US$-backed assets?

## TerraUSD, a truly decentralised stablecoin

TerraUSD (UST) is a decentralised, algorithmic stablecoin that offers a scalable solution for DeFi. Decentralised stablecoin leaders like DAI face severe scalability problems, and UST offers a viable solution. 

People finally realize UST’s potential, including easy cryptocurrency exchange, passive income potential and interoperability. The ability to earn income off stablecoin deposits is a key factor currently driving its acceptance. The fact that UST held its peg during the crypto crash is big news and a significant event for the DeFi ecosystem at large. 

While stablecoins like USDT, USDC, BUSD and TUSD failed to do so, UST held strong. Earlier this year, it was impossible to think of an algorithmic stablecoin outperforming the above-mentioned stablecoins. More and more exchanges are introducing UST pairs, the latest being KuCoin with SOL/UST and MATIC/UST.

Now, one of LUNA's capabilities is ensuring the price stability of Terra blockchain ecosystem stablecoins. 

## LUNA burning drove scarcity

From 26th November to 5th December 2021, for example, roughly 10 million LUNA tokens were burnt! The reason is simple. As more people are purchasing UST and exchanges are introducing UST pairs, more UST will have to be minted to meet growing demands. 

This in turn, leads to LUNA crypto burning, most of which is done by buying LUNA off the open market. 

## Conclusion

Confirming fundamentals means LUNA should be a key part of your core holdings and at the top of your ‘buy the dip’ coin list. LUNA surged to an ATH recently, so do not rush and buy the coin now.

(This article was written prior to the collapse of Terra in 2022)



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