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After my introductory post, I had been searching for inspiration to create more posts until the recent events in the crypto currency market. I have now found a trend to follow for blurt post inspiration.
I will be reporting on important happenings in the crypto market and the blockchain industry in general, to the best of my ability.

"Another way to learn is to teach."

Brace yourselves for very informative, well-researched and simplified and insightful updates, news and market analysis in cryptocurrencies and in the blockchain world.

Let's have a peek into the Terra(LUNA) and TerraUSD(UST) brouhaha..

What Really Happened to LUNA?

The aim of this write up is to inform and educate even the layman. As such, I am going to try to use very simple language. Nonetheless, technical terms are going to be broken down to my best ability.

First of all, what is LUNA?

LUNA is the native token of the Terra Blockchain. It is also a governance token; thus, it is used for block validations and staking. LUNA holders are able to submit and vote on governance proposals on the blockchain.
The Terra blockchain is built by a company called Terraform Labs, based in South Korea. The company is headed by Do Kwon as a cofounder and CEO. Do Kwon is a former software engineer at Microsoft and Apple. He served as the CEO of Anyfi, a company providing decentralized solutions for wireless mesh networks. He has vast experience in blockchain technology. He is also in Forbes 30 under 30 list of world’s most successful entrepreneurs.
Co-founded by Daniel Shin, an economist and entrepreneur. He also co-founded an e-commerce platform in south Korea called TMON (Ticket Monster).
The Terra blockchain supports a number of stablecoins such as TerraKRW, built by the native company Terraform Labs on the Terra blockchain. These are algorithmic stablecoins pegged to fiat currencies such as the United States dollar, the Korean Won, etc
The stable coin that is pegged to the United States Dollar is called TerraUSD (UST).

How stable is TerraUSD (UST)?

The Terraform Lab’s UST gains its stability from its native/governance token on the blockchain, Terra (LUNA).
Basically, UST and LUNA were built with their algorithms directly proportional to each other. This is in a sense that, a decrease in stability of UST directly affects the value of LUNA. Also, an increase in stability of UST in turn means an increase in value of LUNA.
LUNA was built with an algorithm to keep the value of UST at the value of UST’s peg i.e the United States Dollar. It would achieve this by minting more LUNA tokens to stabilize UST when UST is losing its value (when the value of UST is going below that of USD). When UST is also stabilized (i.e when 1UST = 1USD), it would also burn LUNA tokens to keep the value of LUNA afloat.

But What Happened?

From where I sit, there is a simple and short explanation to what happened to the two twin tokens. Anyone who understands the algorithm would give the same explanation or answer to what happened.
When UST started sinking, we all expected that LUNA would mint a few more tokens to stabilize UST. LUNA did mint more tokens with the aim of stabilizing the price of UST but UST was down so low that the amount of LUNA tokens minted to save UST could not save it and even ended up killing LUNA itself. There was roughly 6.4Trillion LUNA tokens minted as a result. From 1Billion tokens in circulation to 6.5Trillion tokens.
If you understand the basic demand and supply rules you will appreciate how this affected LUNA.
Low Supply – High Demand – High Value.
High Supply – Low Demand – Low Value.
6.5Trillion tokens is definitely not low supply. There was so much of LUNA tokens in circulation that LUNA was almost worthless.

Conclusion

We now understand what happened to LUNA. Basically, there is too high supply of LUNA as against the demand, so a single LUNA token is almost worthless.
LUNA minted more tokens to stabilize its algorithmic twin token UST.
Now UST did not stabilize despite the trillions of LUNA tokens minted just for that purpose. Why so?

Why UST did not stabilize despite the trillions of LUNA tokens minted for that purpose?

We would cover this in more detail in our next article. Stay tuned for part two of this article.
Coming soon.
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