LUNA
LUNA was the native cryptocurrency of the Terra blockchain, designed to maintain the stability of the ecosystem’s algorithmic stablecoins, such as TerraUSD (UST). LUNA played a critical role in the mint-and-burn mechanism, which helped UST maintain its peg to the U.S. dollar.
In May 2022, the Terra ecosystem experienced a catastrophic collapse when UST lost its dollar peg, leading to the hyperinflation and crash of LUNA. Despite this, a new version of Terra emerged, known as Terra 2.0, while the original blockchain was renamed Terra Classic with the ticker LUNC.
Key Features of LUNA:
- Stabilizing UST:
LUNA was burned or minted to maintain the peg of TerraUSD, making it integral to the ecosystem’s stability. - Staking and Rewards:
LUNA holders could stake their tokens to earn rewards while securing the network. - Governance:
LUNA token holders had voting power in decisions about the Terra ecosystem’s upgrades and changes.
The Collapse of LUNA:
- UST Depegging: The algorithmic mechanism failed when market conditions led to a massive sell-off, breaking UST’s dollar peg.
- Hyperinflation: To stabilize UST, vast amounts of LUNA were minted, causing its price to plummet to near zero.
- Market Impact: The collapse erased billions in market value and highlighted risks in algorithmic stablecoins.