Terra-Luna’s complementarity mechanism is broken and it plummets.
CEO Kwon Do-hyung also acknowledged “The Terra project failed”
Even if structural problems and fraud allegations arise
No government intervention possible
The price of Luna on the followingnoon of the 15th. Coin Market Cap Capture
The collapse of the Korean coin Luna and TerraUSD (UST) revealed a loophole in the virtual currency management system. Even if structural problems are found in virtual asset management, there is no basis for supervising or punishing them. Accordingly, the voice that a law should be enacted to regulate the virtual currency market is gaining strength.
According to CoinMarketCap, a coin market site on the 15th, Luna was traded at $0.0003 as of 3pm on the day. Her price, which was hovering around $80 just a week ago, has dropped sharply.
Luna’s plunge began on the 10th of this month when the value of its sister coin, UST, fell below $1. Luna is a cryptocurrency issued to maintain the value of 1UST at 1 US dollar. The issuer, Terraform Labs, has adjusted the currency supply and price by printing Luna and buying UST when the UST price falls below $1, and conversely, buying Luna with UST when the UST exceeds $1.
However, this mechanism was quickly broken when the ‘death vortex’ began, in which UST and Luna plummet. As the value of Luna received following selling 1UST fell in real time, the trust that ‘1UST = 1 dollar’ was broken among investors. In fact, as of 3 pm that day, the value of 1UST was 20 cents.
Kwon Do-hyeong, CEO of Terraform Labs, also acknowledged the failure of the UST project through his personal Twitter on the 14th. He said, “It is heartbreaking for my invention (Luna UST) to cause pain to everyone.
He also announced plans to restore the Terra ecosystem by distributing 1 billion new tokens to Luna/UST holders. However, the industry’s reaction is chilly, as Changpyeong Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, dismissed it as “not going to work.”
To make matters worse, the suspicion of a ‘Ponzi scam’ that had been raised before this incident also raised its head once more and fueled the collapse of both coins. The issuer has paid 20% annual return to investors who purchased and deposited Terra, but some have expressed suspicion that the only way to maintain this rate of return is to pay new investors money to existing investors.
No government intervention possible
Even though structural flaws and suspicions of fraud arose in the course of the UST/Luna crash, the financial authorities are not able to take any special action. An official from the financial authorities explained, “The supervision of virtual currency is all regarding checking whether the anti-money laundering obligations are being complied with.”
Given this situation, the financial authorities have no way of even verifying whether the reserves actually existed at Terraform Labs. In addition, in order to confirm the suspicion of Ponzi fraud, it is necessary to look at how the issuer operated the ‘deposit cryptocurrency’, but it does not have the right to look into it.
Accordingly, the voice of the need for regulation in the virtual currency market is gaining strength. U.S. Treasury Secretary Janet Yellen said on the 10th that “The fall of Terra is an example of how dollar-linked stablecoins are threatening financial stability.
The Korean financial authorities are also promoting the enactment of the ‘Basic Act on Digital Assets’ to enable inspection, sanctions and management of virtual asset operators. The government plans to prepare a government plan in consideration of regulatory trends in major countries within this year, and prepare an enforcement ordinance by 2024 to implement the law.
Park Joo-hee reporter [email protected]
Balance to see the world, Hankook Ilbo © Hankookilbo
