Do Kwon reappears after Terra's LUNA crashes from $64 to $0.50 in 72 hours

  • Terra's LUNA witnessed a 89% decline in its price overnight, dropping to levels not seen since early 2021. 
  • Do Kwon, CEO of Terraform Labs, went missing but then reappeared with  a recovery plan for LUNA, followed up by Proposal 1164. 
  • Analysts predict a further decline in Terra's tokens LUNA and UST after the collapse of the algorithmic stablecoin. 

Terra's LUNA has continued its downward spiral following the colossal crash of the algorithmic stablecoin UST. Do Kwon, CEO of Terraform Labs, who disappeared during UST’s debacle has reappeared and announced a recovery plan, known as Proposal 1164. 

Terra bleeds amid market-wide crash, holders await a plan of recovery

Terra's algorithmic stablecoin UST collapsed after losing its $1 peg. This happened despite Terraform Labs employing a dual token mechanism to stabilize UST's peg to $1. 

By design, if the UST price exceeded $1, Terra users burned $1 in LUNA to mint 1 UST and increase the supply of UST. An increase in supply allowed the stablecoin to return to its peg, theoretically.

The converse held true when UST slipped below $1, and burning UST reduced its supply to stabilize the peg. 

While Terraform Labs' dual token mechanism fared well through early 2022, the Luna Foundation Guard, the organization that ensures the stability of UST, acquired billions of dollars worth of Bitcoin and created a reserve for Terra as a further safeguard. 

Experts warned investors of the risk associated with algorithmic stablecoin and previous failures like Iron Finance's IRON's collapse, considered the "world's first crypto bank run."

The pressure on Terra's tokens increased with rising market volatility, and UST lost its peg on May 8, 2022. Proponents observed a recovery within hours, with the help of a Curve Finance user's move to deploy $146 million in a pool in exchange for UST, increasing its price. 

Do Kwon, the Terraform Lab's CEO revealed Luna Foundation Guard's plan to loan out $1.5 billion in Bitcoin and UST reserves to protect the stablecoin's peg; however, these attempts failed, and the token collapsed. 

The CEO told his 495,700 Twitter followers that he is working on an updated plan to promote Terra tokens recovery and disappeared. Kwon’s reappearance was accompanied with a review of the current situation and a proposal to mint more UST. 

Proposal 1164 addresses the slow burn of UST, the leading cause of the stablecoin’s high supply and unstable peg. The proposal elaborates on the loss of confidence in the UST peg and coordinated attacks with the goal of UST de-peg and pushing LUNA prices down aggressively. 

Kwon believes speculators in the crypto market have taken advantage of the news around UST peg restoration and burned more UST to mint billions more LUNA. This has increased LUNA supply and pushed UST below its peg consistently. The front running and selling activities of traders are pushing LUNA down. 

Since there is more than the necessary quantity of LUNA being minted, Kwon proposes to increase the size of the BasePool and decrease the recovery block. This would increase daily minting capacity fourfold and aid the recovery of the Terra/ LUNA ecosystem. 

Kwon's big idea is a proposal for the community and has received over 86 million "YES" votes, a nod from the community that awaits Terra's token recovery. 

The collapse of Terra's stablecoin has garnered attention from critics and analysts in the crypto community, which predicts further decline in LUNA and UST, in the absence of concrete measures for the tokens' revival. 

Miles Duetscher, a host on Crypto Banter, believes UST’s collapse is the biggest threat to crypto, and the algorithmic stablecoin's crash could have massive ramifications on the entire ecosystem. 

Duetscher highlighted the money market Anchor Protocol's role in the collapse of Terra's UST, acknowledging its dominance over UST. 57.8% of the protocol's total value locked was wiped out this week. UST is leaving Anchor, swapping for other assets, and the total selling pressure on the algorithmic stablecoin is rising. 

The analyst predicts a further negative impact on UST. 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Join Telegram

Recommended content

Recommended Content

Editors’ Picks

Arbitrum community opens vote for 200 million ARB Gaming Catalyst Plan proposal

Arbitrum community opens vote for 200 million ARB Gaming Catalyst Plan proposal

Arbitrum community opened a vote for its Gaming Catalyst Program (GCP) to boost support for game builders in the ARB ecosystem. The plan is to strategically allocate 200 million ARB to game projects within Arbitrum. The token has sustained its gains from the week.

More Arbitrum News

ONDO extends gains by 4% with rise in non-empty wallets, hits new all-time high

ONDO extends gains by 4% with rise in non-empty wallets, hits new all-time high

Ondo extended gains by 75% increase in the past 11 days, per crypto intelligence tracker Santiment. The token ranks among top trending assets on the platform, with a massive spike in non-empty wallets. ONDO added 4% value to its price on Sunday, sustaining 40% gains from the week. 

More Ondo News

Aptos user transactions hit record high, APT eyes over 20% gains

Aptos user transactions hit record high, APT eyes over 20% gains

Aptos user transactions in a single day reached 97.488 million. The number of user transactions and Transactions Per Second, both metrics hit a record high, supporting the thesis for price gains in APT. The rise in transaction-related metrics can be attributed to Tapos, a viral clicker game where users can earn rewards. 

More Aptos News

US Presidential candidate Donald Trump is open minded to cryptocurrency, supports right to self custody

US Presidential candidate Donald Trump is open minded to cryptocurrency, supports right to self custody

US Presidential candidate Donald Trump shared positive views on crypto, posting on social media platform, “I am very positive and open minded to cryptocurrency companies and all things related to this new and burgeoning industry.” 

More Cryptocurrencies News

Bitcoin: BTC struggles, but $80K is at striking distance Premium

Bitcoin: BTC struggles, but $80K is at striking distance

Bitcoin (BTC) price is in a good position to resume the bull rally despite the recent struggle. Optimism will restart if BTC overcomes a critical hurdle and flips it into a foothold. In such a case, the pioneer crypto will be slated to push to a new all-time high (ATH). 

Read full analysis