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Price Drops, Terraform Labs Delays Sale of Terra Luna Coin

Navigasi - The price of the Terra USD (UST) Stablecoin and the Luna crypto token has continued to decline in recent days.

Price Drops, Terraform Labs Delays Sale of Terra Luna Coin
Price Drops, Terraform Labs Delays Sale of Terra Luna Coin

Terraform Labs, the company behind the two crypto assets, even stopped new transactions 2 times in less than 24 hours.

In a company tweet on Twitter, Terraform Labs said that validators, or entities entitled to verify transactions on the blockchain, decided to "make plans to reorganize" the Terra network.

"Blockchain Terra is officially stopped at block 7607789. Validator Terra stopped network to reorganize plans. Stay tuned for upcoming updates," the company wrote on Twitter with the handle @terra_money.

The company also provided information via Discord, saying "The quorum among validators is trying to stop the network to avoid the DECIMAL crisis due to Luna's exponential depreciation," said Validator Terra before closing the transaction, as quoted by KompasTekno from Bloomberg.

Previously, the validator also had time to stop transactions and then open them again. The analogy of this practice is like turning off the computer and turning it on again, resulting in a software update. In blockchain networks, this practice is done to help avoid cyberattacks.

The price of UST itself was sold for only 11 US cents on Friday (13/5) afternoon. Meanwhile, Terra Luna plunged to almost zero prices. In fact, the token once touched the figure of 119 US dollars (Rp 1.7 million) a month ago, namely in April 2022.

According to CoinMarketCap data, total Luna tokens in circulation rose from 1.46 billion to 6.5 trillion as of Thursday (12/5). Meanwhile, UST's relationship with Terra Luna is part of an effort to maintain the US$1 peg. So the UST owner can exchange one UST (price above or below 1 US dollar), with one Luna coin or vice versa.

Terra Luna is a token created by Singapore-based Terraform Labs in 2018 and is part of the Terra blockchain project, which is intended to track the value of the US dollar, or the equivalent of the stablecoins Tether and USDC.

Unlike other crypto assets, Terra does not have cash and other assets held in reserve to back up its tokens.

Instead, Terra uses a complex code mix alongside a token called "Luna" to stabilize prices.

Summarized by CoinDesk's KompasTekno, Terra Luna has an important role in keeping the Terra USD (UST) stablecoin stable.

Stablecoins are cryptocurrencies that are created to have the same value as certain assets, such as state-issued currencies (eg US dollar/rupiah) or other commodities such as gold.

Stablecoins were created so that the price of cryptocurrencies could be stable. Because, the number of stablecoins circulating on the blockchain is the same as the amount of official money (issued currency) owned by the company.

However, UST has a different method from other stablecoins, such as USDC and USDT in stabilizing its price. This is because UST uses a "smart contract" based algorithm to keep the price of Terra USD or UST stable at a price of 1 US dollar.

Technically, the method will burn Terra Luna tokens to print new UST tokens. In the Terra ecosystem, users can exchange Terra Luna to UST or vice versa, with a guaranteed price of 1 US dollar. The price is guaranteed, regardless of the price of the two tokens on the crypto market.

So, when the demand for UST increases and the price rises above 1 US dollar, Terra Luna owners can exchange it for UST tokens and earn risk-free profits.

Likewise, when the UST request price is low and the price drops below 1 US dollar, UST owners can exchange their tokens to Terra Luna (when the price of Terra Luna goes up) with a 1:1 ratio.

UST is also considered important for bitcoin investors because the Luna Foundation Guard, the organization that supports the Terra project, has billions of US dollars in bitcoins that could potentially be dumped into the market at any time.

On Monday (9/5), Luna Foundation founder Do Kwon said he would lend bitcoins worth US$750 million to trading companies to help protect UST, and then buy more bitcoins when market conditions normalize.