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The last few days have been bumpy for the Terra ecosystem as it has struggled to bear with what is easily the most challenging period in its more than four years of existence. The situation went from bad to worse in the space of five days as Terra’s native token and USD-pegged stable coin imploded.
The Terraform Labs team scrambled to preserve the value of Terra assets to no avail. In the aftermath of this drastic collapse, several investigations have been launched on the ecosystem’s creator Do Kwon. Upcoming Terra events have also been canceled as investors have been left drowning in heavy losses.
Terra’s blockchain was indefinitely halted
Despite attempts to prop up the plunging ecosystem, Terraform Labs couldn’t sustain the rapid decline and resorted to officially stopping the network, halting block production. The Terra team stopped the blockchain at block height 7603700.
Terra took the decision to shield against a significantly reduced cost of attack that had left the network vulnerable to governance attacks. In effect, validators intended to apply a patch that would disable delegations before the blockchain could come back online again. The patch was deployed as expected, and block reduction resumed in less than two hours.
However, at around 2:00 AM UTC on May 13, the Terra team informed the community that the network had again officially halted at block 7607789 to allow validators to create a rescue plan to reconstitute the network. The blockchain was stopped indefinitely.
As the Terra situation worsened, crypto exchanges became concerned and outlined measures to protect users from suffering immeasurable losses. Binance was among the first to announce the suspension of LUNA and UST trading pairs.
CEO of the crypto exchange Changpeng Zhao explained in a Twitter thread that the decision was taken as the Terra team failed to burn excessively minted LUNA to restore the UST peg to $1.
Zhao explained that with the network suspended, some Binance users were stacking up LUNA without knowing that once restored and deposits were resumed, the imminent price crash would hit them again. This would be because the LUNA previously “minted due to flaws in the design of the Terra protocol” would flood the exchange once the network congestion is reduced.
Terra: A case for digital asset regulations
The capitulation of LUNA and UST has provided a ‘reference point’ that will be employed to spread the anti-crypto gospel into the future. However, it also provides a perspective that the regulation of stable coins and cryptocurrencies couldn’t come any sooner, at least that is what Securities and Exchange Commissioner Hellen Pierce thinks.
Speaking on an online panel for the London-based Official Monetary and Financial Institutions Forum (OMFIF) on Thursday, the pro-crypto SEC commissioner said “movement” around the regulation of stable coins could come soon. She added that as it’s a new area for regulations, it would take “trial and error” to determine what’s appropriate.
Terra dApp Expo canceled
Terra dApp Expo, the Terra-focused event where Terra community members meet, share ideas and interact, has been called off. The news comes just hours after the organizers of the event, Orbital Command, had confirmed plans to go ahead with the event.
In a Saturday tweet from the team behind the Expo, security concerns compelled the decision to cancel the event, which was initially planned to take place in Texas on June 09 and 10. The team revealed that some ‘understandably upset’ investors who had suffered losses due to the crash had issued threats.
“We have been monitoring the community responses to the idea of TDX continuing, and after careful deliberation, we have sadly decided to cancel the event […] Although many #LUNAtics would love to still meet IRL […], there have been serious threats made from understandably upset individuals and we don’t want to risk anyone’s health/life.”
Users who had already purchased tickets will be reimbursed, the team noted while promising to share updates.
Do Kwon left heartbroken as traders bemoan their losses
The simultaneous implosion of Terra assets has called into question the nature of Terra ecosystem and the algorithmic pegging mechanism of TerraUSD. Do Kwon, in particular, has been the center of focus in the last few days. LUNA holders and traders, on the other hand, incurred significant losses as the value of the asset eroded away.
What makes it worse for Kwon is his vocal public persona and slightly arrogant tone to his remarks on social media. This week, Kwon took longer than usual breaks off social media – which he justified, saying he needed to direct all of his attention to coming up with a rescue plan for the crumbling Terra assets.
He surfaced on Saturday with a post to the community detailing how devastated and sorry he was because of the UST depegging.
“I am heartbroken about the pain my invention has brought on all of you. I still believe that decentralized economies deserve decentralized money – but it is clear that $UST in its current form will not be that money.”
Swiss asset manager denied bailout plans
As of now, the Terra community wallows in trouble and losses. Even what seemed like a saving grace turned out to be false hope.
Swiss asset management firm Gam Holding denied claims that it would inject $2 to $3 billion to absorb the excess UST, as revealed by another press release. Gam Holding said it was looking to find behind the inaccurate story.
Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.