The instability of cryptocurrencies or how even stablecoins like LUNA or UST can lose all their value

The time has come, cryptocurrencies have begun to break the hearts of those who bet on them. Yes, that bright future that they promised seems to have turned into a black hole looking at them from the abyss. What happened? Too many, and we’ll watch everything carefully.

Cryptocurrency trends over the past few weeks have not lived up to expectations. In fact, millions of users have started posting on networks like Twitter or Reddit that things are going to get worse in the coming days. So it was now the worst possible situation.

And that’s what It must be understood that there are many variables in the world of cryptocurrencies, and not all digital currencies have the same impact or value.. There are shitcoins, which are, so to speak, new currencies and have almost no meaning other than being fun.

These are first and foremost stablecoins, and there are also categories among them depending on their value or the structure behind them, designed to support price fluctuations. What no one expects is that the real world will affect their big little bubble of virtual money where everything is always on the rise..

you could say it the indirect culprit was the United States, or rather the economic situation that the country is experiencing due to inflation and the growth of various interest rates. In the real world, this has already taken its toll, the stock market has also plummeted in recent days.

After this little context, we move on to what worries us, the fall of LUNA and UST.. The first of these was the Terran-based stablecoin, a blockchain-based ecosystem whose mission is to issue stablecoins. Come on, there is no logic in this; although lovers of these virtual currencies think so.

And in fact, Terra has its own token, which serves as a guarantee for other currencies.. But at the same time, it is a cryptocurrency that you can work with, and which, logically, is also affected by any external situation, such as what happens in the United States.

Taking all this into account, we are dealing with the Terra platform, which distributes stablecoins and has its own UST, which can be affected by inflation, since they, in theory, they must be equivalent to the real value of the currency they are associated with, which in this case is the dollar..

Where does the MOON appear? This Misnamed Stablecoin it is a token that serves as a promise so that investors can play with cryptocurrencies. The operation is as follows. If, for example, you have 10 UST and LUNA has a value of 5 euros; you will receive 2 LUNA, which you can then sell for 10 euros.

What the hell is with the UST depeg? If you don’t understand anything and MOON confuses you, keep reading pic.twitter.com/6Hc2axWgHF

— Fernando Gutierrez (@fernando) May 10, 2022

Go, that when you want UST you must use LUNA and if you want your money back you must also use this system. In addition, when the MOON changes, it collapses and therefore situations of supply and demand arise. What happened was that Terra made changes, such as the fact that part of LUNA was not destroyed.

And why isn’t it destroyed now? Because the company sets aside these funds to buy bitcoins.. Starting a vicious circle because of what was mentioned at the beginning of these lines. Grabbing bitcoin and facing a downturn in the market, the price of LUNA was fixed at about the same level as the price of UST.

After that, it began to decline and, naturally, equivalence and transformation lost all meaning.. In addition, the fact of withdrawals by millionaires during these weeks and the fall in the market further increased the pressure on LUNA, so that the fund that held the purchased bitcoins began to sell.

The sale made was to have assets to buy LUNA and make it real equivalent to UST again, in order to maintain the fact that this currency is close to the US dollar. But this was not possible, bitcoin continued to fall, and therefore the sale price was not enough for a monstrous purchase of LUNA.

The Terra blockchain has resumed block production. Validators have decided to disable on-chain swaps and IBC channels are now closed. Users are encouraged to connect off-chain assets such as bETH to their native chains. Note. The bridge over the wormhole is currently unavailable.

— Terra (UST) Powered by LUNA (@terra_money) May 13, 2022

So we find that bitcoin is at the bottom, LUNA is below UST and Terra doesn’t know what to do because everything is in free fall. Faced with such a situation, the reaction of this company was to completely paralyze its entire network, which led to the cancellation of various transfers of this currency..

Cryptocurrency specialists have branded this situation as one of the most startling in recent years, and in the end, it turns out that virtual currencies are not as stable as they were supposed to be due to the many contingency networks they had. We have only one sentence that can sum up this whole situation, namely: “This is the market, friend!”