In every industry, the future is too distant a place for people involved in it and their expectations. And when it comes to the crypto market, nothing can be more volatile, as is evident from the recent Luna crash.
For there to be so much volatility on an asset meant to be stable, the UST puts a lot of question marks on the stability of such stablecoins, but alongside us, the crypto heads get to learn quite a lot of things as well.
A tumble on the Luna token resulted in its market value going from $20B to $840M in a single crash. This event resulted in a somewhat ‘virtual disappearance’ of Luna since Binance halted its trading as well. But the question arising in many peoples’ minds is that is this the end?
Simple answer, NO. The recent crash questions the credibility of cryptocurrencies but does not signal the end. In fact, bitcoin fell by 80% in 2018, a higher percentage than now. Later, the cryptocurrency was able to fully recover and went on to set new highs, as seen in the previous year of 2021. It, of course, signals happiness as well as reliability among the investors.
Considering the saying of an economist John Maynard Keynes as once he pointed out, “the markets can remain irrational longer than you can remain solvent,” that is, there may be people who need the money to cover expenses or who sell because they consider the drop excessive.
The entire system relied on the confidence of the public that UST would always remain pegged to the USD at the fixed exchange rate of 1 UST to 1 USD. When times were good, the ability to exchange UST for USD was never in doubt. But when UST lost its peg to the USD, and the doubt in the currency peg increased, confidence lessened, and everyone immediately traded in their UST or even sold them.
As UST was burnt to create Luna or as some call Luna the sister coin of UST,Luna’s prices also decreased, and the excess supply and algorithm that had so long kept the ecosystem strong became the enemy that destroyed it from within.
We must be careful not to allow the price crash to distract us from the innovation that Terraform Labs has presented, which actually provides a reason for users to stay on the blockchain. But we must also be careful not to allow the hype of the initial success to blind us to the fact that the flaws are not features of the product.
As the community reflects on the problems and solutions for the Terra ecosystem, some inspiration can be drawn from the real world of fiat currency.
While crypto aims to displace fiat currency, the crypto space is nonetheless still in its infancy when compared to the world of fiat. Innovations and lessons taken from the world of fiat economics can still be applied to the world of crypto to make it better.
The ultimate level of human development lies between the extremities of complete freedom and a complete lack of it. Perhaps, with cryptocurrencies pushing the next level of freedom in the financial space, they bring humanity one step closer to this final level of development.