Briefly about the Terra network
Terra is a blockchain network with the goal of creating stablecoins. The network was created in 2018 and gained enormous popularity in the world of cryptocurrencies. The network algorithm is built on the Delegated Proof-of-Stake consensus. The assets issued by the platform (Terra USD, Terra KRW, Terra SDT) are pegged to the respective fiat currencies backed by the (native) Terra (LUNA) cryptocurrency.
When a stablecoin is issued, the LUNA coin is burned for the corresponding value. To withdraw stablecoins from circulation, with the help of LUNA, an exchange is made for another asset. At the same time, cost fixing is supported by arbitrage.
The network's flagship stablecoin is the USD, which is pegged 1:1 to the US dollar. However, if other stablecoins are backed by fiat money or an equivalent asset, then USD was not originally backed by US dollars and depended on the value of LUNA and Bitcoin, which were used as a reserve.
On May 11, 2022, the Terra (LUNA) cryptocurrency, which was one of the ten largest cryptocurrencies, collapsed and lost 99% of its value.
What is the reason for the collapse?
It all started with a general bear market for all cryptocurrencies, which shook the stablecoin USD, the rate of which temporarily lost its peg to the dollar and fell by $0.98. Panic began and a massive sale of the asset by users, which in turn disrupted the network algorithm and ultimately collapsed the course. Since the network was not initially backed by real money, the creators did not have financial instruments for stabilization. The result is an almost complete depreciation of the network's assets.
Some sources claim that the collapse and depreciation occurred as a result of collusion and machinations of large investors with the owners of the network, but no real evidence has been provided. The reality is that investors have lost money and it is not known whether they will be able to return them.
Can the network be revived?
A lot of investors believe that the creators of the network will correct the situation and the course, albeit not immediately, but will return to the previous indicators. The opinions of experts and analysts are divided here. Optimists claim that the network will be restarted, attract investments and, thanks to its recognition and popularity, will be revived. Skeptics argue that fraud is behind the fall, irreparable damage has been done to the image of the network, and the network itself will not be able to recover. As it will be in reality, only time will tell.