Luna disaster raises questions about the future of cryptocurrencies

The collapse of the Luna and UST tokens is seen as a bad sign for crypto expansion as they may be tightened.

Since May 9, the cryptocurrency market has been in turmoil as the value of two Terra tokens, Luna and UST, have been in free fall, from a market capitalization of over $30 billion a week ago to around of $70 million. and it keeps increasing. continue to decrease. Stablecoin UST, which used to have a stable price of one dollar, is now only $0.2.

After the “crypto winter” more than four years ago, regulators and users are beginning to take a more positive view of cryptocurrencies. However, experts say the Luna disaster is eroding confidence.

Short term impact

Once priced over $100, Luna dropped once to $0.0001 in the past week, which is a million times lower. Simply put, if a person owned a Luna worth a million dollars before May, the net worth of it now is exactly one dollar. Like UST, these stablecoin holders also split five accounts, although it is a priced stablecoin.

The collapse of Luna, the token that used to be in the list of the 20 largest cryptocurrencies in the world by market capitalization, caused many people to lose everything overnight, without understanding what was happening, because they believed in a “higher currency”. “Prices cannot be lowered so quickly.

Due to their popularity, Luna and UST were restricted or removed from the trading lists of most cryptocurrency exchanges. Indian Express commented: “This serious incident could erode investor confidence in the cryptocurrency market in the short term.”

In addition, the fall of Luna also affects the cryptocurrency market. Bitcoin from the previous mark of over $34,000/coin fell to $27,000 on May 12, the lowest level since December 2020. Meanwhile, many other tokens also fell from 30% to over 50%.

Stablecoins can be squeezed

According to Protocol, following the Luna incident, regulators globally are expected to increasingly tighten crypto projects with stricter regulations to minimize harm to market participants. .

Experts predict that regulations will focus more on stablecoins after the collapse of the UST. In fact, in recent times, regulators have focused more on digital currencies that fluctuate in value than stable currencies: digital currencies built on top of the blockchain and linked to price. value of fiat currencies such as USD or USD. Euro.

“This flash crash is a reminder that the model behind most stablecoins is still highly experimental,” said Ronghui Gu, founder and CEO of blockchain security company CertiK. with The Edge. “In the world of blockchain and Web3, anything can be applied to stablecoins, but no solution is completely convincing yet.”

“The lessons from the UST will certainly fuel the push to regulate cryptocurrencies, especially stablecoins,” US Senator Pat Toomey said during a press conference on May 11. “These are investments. sometimes it makes huge profits, but the zero risk is also very high. Therefore, investors should always make sure that they understand what they are doing. ”

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

Commenting on the development of Terra, US Treasury Secretary Janet Yellen told the WSJ: “Everything shows that 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 suggested that the UST crisis is likely to bring “a lot of wind to the sails” to promote a digital currency issued by the US central bank. “Stablecoins have shown real demand in the market”, said Alex Johnson, head of Fintech Takes at Protocol.

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