This year has not been great for the investors. Almost every other stock, mutual fund, and even cryptocurrencies values are falling greatly. Even the most popular cryptocurrency, Bitcoin’s value has diminished. The market has also hit Terra terribly. Its value has depreciated twice this year and that is not it, a lot of exchanges have also delisted LUNA from their list.
But why did this happen? The value of the stablecoin LUNA has dropped to almost nothing this year and thus, the Terraform labs decided to shut down the blockchain a few days ago for nine hours. But when it came back again, a huge number of exchange platforms had already delisted LUNA. The market has been unsteady in the past few weeks, and both LUNA and TerrsUSD could not handle it.
Investors who have invested a huge amount of money in this stablecoin had to suffer a huge amount of loss. Just a few months ago, the value of LUNA had risen to $90. But now, its value has dropped down to even a fraction of a dollar. The expedites and big investors believe that Terra is now going into a “death spiral”.
Statistical data shows that in the last few days, the value of TerraUSD and its sister currency LUNA has dropped down by 80%. Both the stablecoins have become almost worthless now. So, if you want to know more about Terra and why its blockchain is not able to survive the turbulent market, this article is for you. Here, I will also be discussing what cryptos you should consider investing in 2022.
Cryptocurrency And Blockchain: A Clear Overview
Before understanding Terra and its blockchain, let us understand what cryptocurrency and blockchain mean. The concept of cryptocurrency was first introduced in the year 2009 when the first cryptocurrency Bitcoin was created. It was a digital currency that worked on the blockchain network. Cryptocurrencies are used as a medium of exchange to buy goods and exchanges.
The cryptocurrencies were created to make sure that there is no middle man like banks and other government departments involved when a transaction takes place. When a good or service is bought with cryptocurrencies, only the buyer and the seller are involved in the transaction process. There are many 3 ways in which cryptos can be used: crypto tokens, cryptos, and crypto commodities.
But, other than the 3 types of cryptos, cryptocurrency is also trying to emerge as a stablecoin. Cryptocurrencies like LUNA and TerraUSD tried to become stablecoin like the US Dollar. They also tried to emerge as a crucial component of DeFi (decentralized finance). But just a few days ago, both the cryptocurrencies’ values dropped terribly.
And what is a blockchain? All the cryptocurrencies work on the blockchain network. It was created by Satoshi Nakamoto, also the creator of Bitcoin, to develop a peer-to-peer electronic transaction system. Blockchain can be described as a public ledger or global spreadsheet. There is complete transparency in blockchain transactions as it is a public network that any user can have access to.
The blockchain network, among other things, has made it possible for consumers to transfer cryptocurrencies without having to involve a third party, the banks. This technology has become so popular in just a decade. Experts believe that with approximately 50% of the world’s population using a smartphone these days, this technology is soon going to replace the old banking technology.
Different Types of Blockchain Platforms
Back in 2009, blockchain technology was only meant to be used for cryptocurrencies. But with time, a lot of other blockchain platforms have emerged. Here are some of the best for you in 2022 –
IBM Blockchain – IBM is one of the largest IT companies in the world. Their blockchain platform provides the users with a lot of tools and choices. Its high security is also one of the best features.
Corda – Another great blockchain platform that provides the consumers with an effortless environment. Its high-security network also makes it the best choice for healthcare, insurance, digital assets, etc.
Ethereum – You must have heard the name of this cryptocurrency. But, this blockchain network provides more than just a cryptocurrency to its users. It is highly scalable and affordable.
What Blockchain is Terra On?
Before understanding the basics of Terra, let us understand what stablecoin means. A stable coin is a cryptocurrency or an asset that has the value of a single traditional fiat currency or simply, the value of one dollar. There are a lot of stablecoins there in the market. For example, Tether is equal to the value of one dollar and they successfully maintain its price through various assets and fiat reserves.
Some experts believe that without the regulation of stablecoins by some regulatory authority, it would bring in some great risks. But decentralized stablecoins, like Terra, use an algorithm that helps them maintain their pegs. Their algorithm is designed in a way that they can easily maintain their value without reserving cash and debt.
The Terra stablecoin was created in 2018 by the startup, Terraform Labs. The founders, Daniel Shin and Do Kwon worked hard to maintain the stablecoin equilibrium. A lot of people had invested their money in this stablecoin which was doing quite well. But, this year, the stablecoin could not handle the turbulent market and its value fell.
But how did they successfully maintain their equilibrium since 2018? Before an investor bought TerraUSD, they would have to mint some of it. For that, the investors had to pay the rate in LUNA. Then the protocol would take those LUNA, and burn them. This process helps in maintaining the supply and prices of LUNA.
Similarly, if you want to invest in some LUNA, you would have to pay the price in TerraUSD, which then the protocol would burn to maintain the price and supply of Terra. But now that Terra’s value has diminished, what will happen next? The creators of Terraform Labs have talked about their new plan to start Terra Ecosystem.
The founder, Kwan also accepted the fact that the stablecoin Terra has failed and cannot be rebuilt. But, he still believes that they have a huge amount of loyal customers who know their brand name. This will help them to come up with newer and better things in the future.
He also suggested distributing 1 billion LUNA coins among Terra holders. Then the new network would be run only by a community and not the Terraform Labs or Kwan. So, if you have invested in Terra, there is no chance of any miracles. You might end up receiving some amount as recovery but that will only be a move to revive the Terra Network.
5 Things You Must Know About Terra Blockchain
This year, the investors are in constant fear. And with Terra’s value diminishing, here are 5 things that you need to know about it –
1. Volatile Issue – Unlike other cryptocurrencies like Bitcoin and Ethereum, which get affected very easily by the market, stablecoins like TerraUSD are more stable. These do not rise or fall very easily. Investors who do not aim for a huge amount of profit, but rather a decent amount of profit with no risk, invest their money in such cryptos. But the fall of Terra made the investors look at it differently.
2. Balancing – The stablecoins work on the supply and demand chain. That is what made the Terra coin maintain its stability for all these years. This also helped the investors gain a stable amount of profit from these coins. Investors were earning 20% of the interest from their coins. But a few days ago, a run]mour about Terra changing its fixed 20% interest to variable-rate changed everything.
Investors started selling their coins and thus, Terra lost almost 80% of its value.
3. Cryptocurrency crash – The investors feared that they would lose all their money. That is what led the investors to panic and sell all their coins. The whole crypto market has suffered a crash this year.
4. Blockchain Halts – LUNA faced severe inflation this year. That made Terraform Labs halt their blockchain network for nine hours. That means, no new blocks were created for nine hours.
5. Bitcoin Reserves – Investors all over the world had bought $3.5 billion worth of Bitcoin to buy Terra and maintain the one-to-one peg with the dollar. But, as the prices of Terraq dropped, the $3.5 billion Bitcoin was untraceable. On May 9, approximately $1.7 billion was transferred to LFG.
Terra’s Failure: A Big Lesson for the Blockchain Investors
Terra’s downfall has been a heartbreaking incident for the investors. Bit moving forward, here are the two lessons that you must learn from the fall of this stablecoin. They are –
Invest the amount of money you can afford to lose – The First thing that you must learn from Terra’s downfall is that the investment market will always have some risk factors, so you must only invest the amount of money you can afford to lose.
On some days, you might see the market and be amazed by the number of profits some of the cryptos are making, but at the same time, the risk of such cryptos’ failure can also be very brutal. Also, never borrow money from someone to buy cryptos. Always save a big amount of money in some risk-free place.
Just because the term says “stable” doesn’t mean they are – Even though the concept of stablecoin was to be as stable as the traditional or fiat currencies, it turned out to be a big failure. A huge number of people were attracted by their 20% APY offer. They even moved their savings from the bank account to invest in Terra.
Blockchain companies to Invest in 2022
If you are planning to invest in blockchain companies this year, there are 9 best blockchain companies you should consider –
- Nvidia
- Block
- CME Group
- IBM
- DocuSign
- Mastercard
- Amazon
- GlobalX Blockchain ETF
- Coinbase Holdings
But, if you are still looking for a good stablecoin to invest your money in, you must do your own research. Make sure you know how the particular token is supporting itself. Just like the USD Coin, a kind of stable coin that reserves $1 for every token it issues, choose such coins.
Yet, stablecoins will always have a risk factor associated with them. Terra’s downfall must be a big lesson for all cryptocurrency enthusiasts.