$LUNA

CF

@cfm_solx:cfm_sol · X / Twitter

Original postSep 07, 12:30 PM

$LUNA 3.3m dyor 0xee132e984cafa9525a511e2033a1ec53b9f87777 okx wallet: CZ said four years ago: “Binance has never sold the LUNA it received back then.” Someone then brought up this screenshot and started pushing the narrative of a “low-market-cap, on-chain LUNA reversal play” based on the LUNA that is already listed on Binance. The reason the original LUNA collapsed was that its algorithmic stablecoin mechanism entered a death spiral under a bank run. Simply put, UST was not a stablecoin backed 1:1 by dollars or other assets. Instead, it maintained its $1 peg through a mint-and-burn mechanism between UST and LUNA: When UST traded below $1, anyone could burn 1 UST and receive $1 worth of LUNA. Conversely, when UST traded above $1, users could burn LUNA to mint UST. This mechanism could maintain the peg through arbitrage when the market was calm, but once large-scale redemptions began, problems emerged. The collapse roughly happened like this: The Anchor Protocol offered yields of around 20%, attracting huge amounts of capital into UST. The yield itself was unsustainable and was largely maintained through subsidies. In early May 2022, the broader market weakened, while large UST selling also appeared on Curve. UST began losing its peg and fell below $1. People rushed to redeem UST for LUNA. To process these redemptions, the system massively increased the supply of LUNA. LUNA’s supply exploded and its price collapsed. The cheaper LUNA became, the more LUNA had to be minted to redeem the same amount of UST, creating a vicious cycle: UST falls → more redemptions → more LUNA minted → LUNA falls further → confidence collapses further. This created the infamous “death spiral.” Panic spread quickly, with a large number of retail users in South Korea and elsewhere participating, further accelerating the sell-off. Eventually, UST fell to just a few cents, while LUNA went virtually to zero. The entire ecosystem lost roughly $40 billion in market value. On top of that, founder Do Kwon is Korean, and LUNA was extremely popular in South Korea at the time. Many people had heavily invested in it, with some even using leverage. So for some Koreans, the LUNA collapse carries a particularly strong emotional trauma within the Korean crypto community.