After stopping operations for more than nine hours, the Terra blockchain resumed activities, amid a crisis ongoing in the industry. The blockchain’s ecosystem got meltdown and this has caused its stablecoin UST to crash. All of these has come at a time when the cryptocurrency industry has plunged, with intensity on the sell-off.
Stablecoins are a cryptocurrency with prices stable even if the crypto market sells off. Stablecoin has been a good platform for the crypto trade; it runs on an algorithm that balances supply and demand. It has a non-volatile nature and, undoubtedly, is the best to facilitate borrowing and lending.
The implication of the halt, which spanned beyond nine hours, is that new blocks cannot be generated on the blockchain network. This means crypto investors and holders of the coin could not take any action on the wallet. The company, in a tweet, said, “Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack,”
The blockchain asked the validators (crypto-miners) to disable on-chain swaps and IBC channels upon resumption. The blockchain also advised users to bridge-off assets to their indigenous chains.
Downslide of Terra and Luna
The Terra ecosystem is known to have two coins, Terra and Luna. Through a module of an algorithm designed by the blockchain developers, Users burn Luna to mint Terra and burn Terra to mint Luna.
Worthy of note is that this differs from USDT, USDC, or other stable coins backed up by fiat equivalents. Meanwhile, in the last few days, holders of Luna suffered massive losses due to algorithmic issues. It should be remembered that UST is pegged at 1:1 with USD as an affirmation to its stability.
According to Coinmarketcap, there was a drastic drop in UST price. On Wednesday, 11th of May, it dropped to 0.225. This means that about 80% value of what should be a stable coin was lost in a matter of days.