The Luna disaster raises questions about the future of cryptocurrencies

The collapse of the Luna and UST tokens is considered a bad sign for the expansion of the cryptocurrency, as they may be squeezed more tightly.

Since May 9, the cryptocurrency market has been in turmoil when the value of two Terra tokens, Luna and UST, in free fall, from a capitalization of more than 30 billion USD a week ago to about 70 million USD and still going. continue to decrease. Stablecoin UST, which used to have a stable price of one USD, is now only 0.2 USD.

After the "crypto winter" more than four years ago, regulators and users gradually began to have a more positive view of cryptocurrencies. However, experts say that the Luna disaster is causing trust to erode.

Short term impact
Once priced at more than 100 USD, Luna once dropped to 0.0001 USD in the past week, which is a million times decrease. Simply put, if a person owned a million dollars worth of Luna before May, their net worth is now exactly one dollar. Similar to the UST, holders of this stablecoin also split five accounts, even though this is a price stable coin.

The collapse of Luna - a token that once stood in the list of the 20 largest cryptocurrencies in the world in terms of market capitalization - caused many people to lose their fortune overnight, not understanding what was happening, because they believed a "top coin". "Can't depreciate that quickly.

From being favored, Luna and UST were gradually restricted or removed from the trading list of most cryptocurrency exchanges. "This serious incident could drain investors' confidence in the cryptocurrency market in the short-term," commented Indian Express.

 Besides, the plunge of Luna also affects the cryptocurrency market. Bitcoin from the previous mark of more than $ 34,000 per coin dropped to $ 27,000 as of May 12 - the lowest level since December 2020. Meanwhile, many other tokens also dropped from 30% to more than 50%.

Stablecoins may be squeezed

According to Protocol, after the Luna incident, regulators around the globe are expected to increasingly tighten up on crypto projects with stricter regulations in order to minimize damage to market participants.

Experts predict regulations will focus more on stablecoins after the UST crash. In fact, over the past time, regulators have focused more on digital currencies that fluctuate in value than stablecoins - digital currencies developed on blockchain and anchored to the value of fiat currencies like USD or USD. Euro.

“This sudden drop is a reminder that the model behind most stablecoins is still highly experimental,” Ronghui Gu, founder and CEO of blockchain security firm CertiK, told The Verge. “In the world of blockchain and Web3, anything can be applied to stablecoins, but no solution is completely convincing yet.”

“Lessons from the UST will definitely fuel the push to regulate cryptocurrencies, especially stablecoins,” US Senator Pat Toomey said during a press conference May 11. "These are investments that sometimes offer great returns, but the risk of zero is also very high. So investors should always make sure they understand what they're doing."

Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), called on the US Congress to regulate the crypto assets. He once likened stablecoins to poker chips used at casinos instead of cash. “Cryptocurrencies like stablecoins are growing rapidly and there are risks to financial stability,” Gensler said.

Commenting on Terra's development, US Treasury Secretary Janet Yellen said on the WSJ: "Everything is showing, this is a rapidly evolving product and there are risks to financial stability. We really need a consistent regulatory framework at the federal level."

Even so, it is argued that the UST crisis is likely to bring "more wind to the sails" to promote a digital currency issued by the US central bank. “Stablecoins have proven a real need in the market,” said Alex Johnson, head of Fintech Takes at Protocol.

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