The LUNA incident has caused a stir in the cryptocurrency market, and therefore, the financial authorities in South Korea have launched an investigatory mission to reveal the saga behind the LUNA crash. The aim is to provide clarity for the future of stablecoins and protect the interests of investors. According to local sources, around 280,000 traders in Korea had invested in TerraUSD and LUNA on domestic exchanges.
The key points of the investigation will be to establish what Terra and LUNA are; assess whether they are compliant with financial regulations; determine how the loss of value occurred and why; evaluate what, if any, responsibility the Terra Foundation has; and make recommendations for preventing similar events in the future.
The authorities are also investigating whether Korean service providers followed necessary protocols and safeguards after the most recent catastrophe. Koh Seung-beom, chairman of the Financial Services Commission, informed lawmakers that while governmental recourse is restricted due to a lack of legal authority, officials are keeping an eye on numbers like costs or transaction patterns.
Paolo Ardoino, the chief technology officer behind Tether, the world’s largest stablecoin, said during a Twitter Spaces on Thursday that while it’s in the realm of conspiracy theory, for now, he thinks there was likely an attack on Terra. “If you have a weakness, you can always expect someone that is bigger than you to use that weakness, and we have seen that with Terra,” he said.
Many first-time investors were left confused about what happened, and there are a few theories. Among them is that there was a “concerted attack” on the Terra ecosystem in which the claimed attacker made off with over $800 million. It is being likened to legendary hedge fund manager George Soros’ successful bet against the British pound in the early 1990s.
The news of so-called “stablecoins” losing peg is causing waves in the cryptocurrency markets and somewhat contributing to the bearish sentiments driving down the price of other cryptocurrencies like Bitcoin and leaving investors’ money vulnerable. The most prominent stablecoin on the Terra blockchain, TerraUSD (UST), has plummeted over 85%, with some likening the incident to a Ponzi scheme comparable to that of Lehman Brothers, which sparked the 2008 financial crisis.
Stablecoins are supposed to be a relatively safe haven in the highly volatile crypto market. They’re meant to be directly linked to fiat currencies and usually maintain a 1:1 peg with the US dollar. However, recent events have demonstrated that they are just as unpredictable as other coins following the recent LUNA crash.
In a series of tweets, Don Kwon, co-founder of the firm behind LUNA and TerraUSD, Terraform Labs, stated that his firm would seek more external funding and “rebuild” TerraUSD, so it is collateralized. That means it would be backed by reserves rather than relying on an algorithm to maintain its 1:1 dollar peg.
Whether or not the settlement is utilized to avert a network split, there are several assumptions being made about it that are difficult to verify, and it would be unworthy to jump to hasty judgments. Now, regulators have begun looking into a massive cryptocurrency collapse involving TerraUSD and its sister coin, LUNA.
Kwon Do stated in the previous days that Terra had a complete collapse. He acknowledged that restoring the ecosystem from the ashes is difficult. LUNA investors have been diluted and liquidated quite mercilessly, according to him. Even if the UST price reaches $1 again, it will be difficult to recover from there.