Luna Cryptocurrency Price Now — and Why Did It Crash So Hard?
After enjoying two highly profitable years in 2020 and 2021, crypto investors experienced a severe backlash this year as the value of a wide range of cryptocurrencies declined sharply.
Last week may have been the most sudden drop yet, as the value of the Luna cryptocurrency plummeted from $20 billion USD to nearly zero within just a few days. At one point, the coin was listed at $0.00 on Binance, the world's most widely used cryptocurrency trading platform.
Its losses rattled other investors, rippling across the largest coins. Bitcoin lost 17% of its value in five days, and Ethereum's price dropped by 23%.
How Does Luna Work?
Ironically, given the extreme volatility of the past week, Luna — or Terra Luna to give it its full name — was supposed to be a “stablecoin.” Unlike most cryptocurrencies, stablecoins are pegged to another asset to prevent wild price fluctuations.
They can be tied to traditional financial networks through bonds or real-world currencies such as the dollar to anchor them at a specific price point. In Luna's case, its value is pegged to Terra USD, which uses complex mechanisms to maintain its value at a fixed rate against the U.S. dollar.
Luna's price can fluctuate, but if its value shifts too much relative to the dollar, investors would simply convert it into a more valuable currency, thereby stabilizing the values.
Why Did Luna's Price Fall So Hard?
Luna's catastrophic collapse in value came when TerraUSD — the currency that was fundamentally meant to guarantee a stable price — rapidly lost its peg.
TerraUSD was closely tied to the Anchor Protocol, essentially a savings account for the currency that paid an interest rate of 20%. This made holding TerraUSD an extremely popular investment, seemingly guaranteeing very strong returns.
However, Anchor announced in March that it was replacing the fixed 20% rate with a variable rate, expected to be considerably less generous. This triggered a mass exodus from Anchor, pushing more holders to sell both TerraUSD and the closely linked Luna coin.
With large numbers of people trying to offload Terra USD and Luna simultaneously, the mechanism designed to ensure stable rates simply stopped functioning.
By Friday, May 13, Luna's price had fallen below one cent, while TerraUSD — which was supposed to hold at one dollar — had dropped to $0.14.
Writing on Twitter, Do Kwon, the creator of both TerraUSD and Terra Luna, reassured investors: “I understand that the last 72 hours have been extremely difficult for all of you — I know that I am determined to work with each and every one of you to get through this crisis, and we will build our way out of this.”
