Get to know Luna Coin, a Crypto Asset whose Price is Dropping

The price of the LUNA Coin crypto token has recently fallen. In crypto trading on Thursday (24/10/2022), the price of Luna Coin dropped dramatically by 96 percent to the level of 0.0756 US dollars per coin (around Rp. 1,100) in the last 24 hours. Based on monitoring on the CoinMarketCap website, in the past month, the total LUNA Coin price has fallen by 99 percent. In August 2022, LUNA Coin even though had recorded the highest price at 119.18 US dollars per coin or around Rp. 1.73 million.

The issue of the price of LUNA Coin dropping is suspected to be due to the price of the stablecoin Terra USD (UST) crypto currency which has also decreased. The two cryptocurrencies are interrelated. For more details, see the explanation of what LUNA Coin and UST are below. What are LUNA Coin and UST? UST and Luna Coin are crypto tokens within the Terra network, a blockchain developed by a South Korea-based company called Terraform Labs.

The Terra network is built on a platform called Cosmos SDK, which allows developers to build blockchains and build applications on a decentralized or peer-to-peer basis. To date, the ecosystem on the Terra network has contained at least 100 blockchain projects, some of which include NFT collections, decentralized financial platforms, and Web3 applications.

Terraform Labs was originally founded in 2018 by Do Kwon and Daniel Shin with the aim of creating an electronic financial financial system, where transactions are carried out directly between users or peer-to-peer, without going through a third party. To achieve that goal, Terraform Labs implemented a system called stablecoin-crytocurrency, by presenting a cryptocurrency called UST.

Please note, stablecoins are a type of cryptocurrency with a price benchmark based on fiat currencies that are officially issued by the state. As a stablecoin, one UST coin is offered the equivalent of 1 US dollar (approximately IDR 14,000). So that the UST price is stable at that number, Terra uses a coin exchange scheme by utilizing LUNA Coin.

Each US$1 LUNA coin can be exchanged for one UST coin, regardless of the market price of the two coins. During the exchange process, LUNA Coin will be permanently destroyed in circulation to create new UST coins, then the rest will be made for investment in developing the Terra network, as reported by CoinDesk.

When LUNA Coin is burned, the supply becomes less. That way, LUNA Coin will be increasing rare and the price can go up. On the other hand, making more UST will cause the price to stabilize at 1 US dollar. Based on the exchange scheme above, it can be concluded that the existence of circulating UST can determine the price stability of LUNA Coin.

If many USTs are removed from circulation, LUNA Coin may become worthless. The decline in UST from circulation is what makes the price drop. The UST price itself is now below the benchmark price of 1 US dollar, which is about 0.4 US dollars (Rp 5,800).

The decline in circulation was caused by massive UST sales on cryptocurrency transaction platforms, such as Binance and Curve Finance. In addition, there are also quite a number of users switching from UST to other types of stablecoins.