The major reason behind the $LUNC crash was the collapse of the Terra ecosystem, specifically the de-pegging of the algorithmic stablecoin, UST (TerraUSD), from the US dollar. This triggered a "death spiral" where investors lost faith, leading to a mass exodus from both UST and LUNA .
Here are the key factors contributing to the crash:
- _Unsustainable yields_: The Anchor protocol's promise of high yields (20% interest rates on UST deposits) created excess demand for UST, increasing the risk of capital flight .
- _De-pegging of UST_: When UST's price deviated from its dollar peg, the mechanism that minted new LUNA to absorb excess UST couldn't cope, leading to hyperinflation in LUNA tokens .
- _Lack of trust_: The collapse of trust in the Terra ecosystem led to a bank run, where investors rushed to sell their UST and LUNA, further exacerbating the price drop .
- _Regulatory scrutiny_: The Terra LUNA crash also drew attention from regulators, highlighting concerns about stablecoins and the need for stricter regulations .
The crash resulted in a significant loss of value, with LUNA's price plummeting from its all-time high of nearly $120 to fractions of a penny in less than a week .$BTC $DOGE
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