Yesterday, the developers of Terra officially announced the temporary closure of their blockchain.
The Terra blockchain has officially halted at block 7607789.
Terra Validators have halted the network to come up with a plan to reconstitute it.
More updates to come.
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 13, 2022
The flaws in Terra’s blockchain
It was already known that the project was not really decentralized, so it should not come as much of a surprise that a small group of developers could make such a decision on their own.
It is now no longer possible to transact in either LUNA, UST, or any other token on the Terra blockchain from one wallet to another.
In addition, many exchanges are also blocking trading in LUNA.
Exchanges block Luna
Binance today decided to block trading on Luna, and other exchanges such as the Italian Young Platform will most likely follow soon.
In the meantime, however, many companies such as the Winklevoss twins’ Gemini are taking cover from accusations that they were involved in the crypto collapse.
We are aware of a recent story that suggested Gemini made a 100K BTC loan to large institutional counter-parties that reportedly resulted in a selloff in $LUNA. Gemini made no such loan.
— Gemini (@Gemini) May 11, 2022
According to data reported on CoinGecko, the current market value of LUNA is practically zero, as it has lost practically 100% of its value in the last 24 hours.
LUNA’s total market capitalization has fallen to just over six million dollars, compared to a circulating market of over 6.5 trillion tokens. It is enough to recall that until a week ago it capitalized nearly $30 billion.
This is by far the most colossal failure there has ever been on the crypto markets, because it has never happened before that more than $29.9 billion on a single cryptocurrency has evaporated in a few days.
The freezing of the blockchain should in theory only be temporary, but it is unclear when, and especially if, it will be reactivated. Moreover, given everything that has happened and the fact that this is not a truly decentralized blockchain, it is extremely difficult for the markets to trust the team that is managing it in this way again.
The main problem is the peg of Terra’s former stablecoin, UST, to the value of the US dollar.
UST completely loses its peg with the dollar
Right now UST is worth less than $0.2, and just today it touched its new all-time low price at $0.04. However, it is still capitalized at around $1.7 billion thanks to a circulating stock of 11 billion tokens.
At the moment, having already given LUNA up for dead, the team managing the Terra project is concentrating on trying to bring UST back to $1. So far, not only have all efforts been in vain, but the situation has continued to deteriorate inexorably day by day.
UST has always been the cornerstone of Terra’s DeFi projects, so once UST imploded, the entire Terra ecosystem imploded. The hardest hit was experienced by the native cryptocurrency LUNA, which, like all native cryptocurrencies, has no value pegged to an underlying.
To be honest, at the moment it seems rather unlikely that the devs at Terra will actually be able to find a financial solution to the problem of UST losing its peg to the dollar value. If, as many fear, they do not succeed in the relatively short term, it is possible that they may end up giving up. In that case, the Terra project could be said to be definitively dead.
However, something else could also be reborn from its ashes, as the main DeFi protocol of the Terra ecosystem, Anchor, has a governance token that has not yet lost all its value, even though it is at -98.5% from its highs of March last year. It also still capitalizes at almost $43 million, or seven times LUNA.