Is Terra Luna A Buy Now After The Crash?

Last Updated May 18th 2022
5 Min Read

The price of LUNA has had a significant crash recently, but is LUNA still a buy now currency? Let's find out. 

The cryptocurrency market has crashed heavily. Terra was trading at $118 last month and was positioned as the eighth largest crypto token. However, it saw the worst of its day earlier this month when the price tumbled down to $0.09. The major reason for the downturn was the loss of its dollar peg, which eventually led to the crash in LUNA prices. But is Terra Luna a buy now even after the crash? Let’s see.

Key Points

  • The price of LUNA has plunged down to mere pennies.
  • Experts believe that Terra has high potential and would slowly recover from the downturn, making LUNA a good buy after the crash.


Is This A Buying Opportunity For Investors?

Terra is an Algorithm-backed stablecoin that provides a growing array of decentralized finance applications. The Terra Network has a collection of fiat-pegged tokens or Terra stablecoin and a stabilizing crypto asset. Terra is tied to the value of fiat currencies. LUNA absorbs this stablecoin price volatility. But LUNA has eroded its value to become merely a penny token recently. 

UST lost its dollar peg leading to the crash in LUNA prices as both UST and LUNA are interconnected. A LUNA is burned for every UST traded and vice versa. The market cap of LUNA has plunged down to less than around $300 million.

However, some market experts believe that LUNA could be a buy now even after the crash, as the volume of the LUNA token remains impressive. Analysts say that LUNA would certainly take some time to recover from this erosion, making Terra likely a good buy now. 

buy terra luna

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

How Does The Terra Blockchain Work?

The Terra stablecoin has a unique mechanism to maintain price stability known as a built-in arbitrage mechanism. Terra’s algorithmically-governed blockchain protocol offers a collection of stablecoins. The price is maintained by using Terra miners, as they burn or mint Terra stablecoins and LUNA.

By balancing supply and demand, the protocol stabilizes Terra stablecoin’s price. To gain price stability, the LUNA pool and Terra pool execute quick swaps. The Terra protocol works as a distributed ledger, maintained by validators on the network. The network has a unique consensus mechanism known as Delegated Proof-of-Stake (DPoS), where validators would vote on blocks and earn LUNA tokens as rewards. By participating in the PoS consensus mechanism, Terra miners play an instrumental role in security. Additionally, this helps in stabilizing prices by absorbing short-term volatility in demand. The network achieves stability by mining rewards with a contracting and expanding money supply.

Before this crash, Terra was the second-largest decentralized finance ecosystem, and the booming array of DeFi applications on the blockchain created an increased demand for TerraUSD. Thanks to the built-in arbitrage mechanism, the Anchor and other DeFi products on the platform increase the demand for TerraUSD, leading to the burning of Luna, and ultimately making the LUNA a buy even after the crash. 

The Downfall Of An Algorithmic Stablecoin

Assets that are pegged to the price of a single commodity, currency, or financial instrument are called Stablecoins. Typically these are pegged to fiat currency such as the dollar. Stablecoins like Tether, the first generation of stablecoins, maintain their price using a basket of assets, including fiat reserves. Stablecoins also underpin a growing DeFi ecosystem for the masses.

But the downturn of Terra has highlighted the risk with algorithmic stablecoins. With the spike in the supply, the TerraUSD lost its peg, and the arbitrage mechanism failed to resolve the issue. Moreover, as the stablecoin continued to plunge, panicked investors started selling, adding to the downward pressure in the larger market. 

But several promoters of decentralization argued that a centralized entity introduces a single point of failure into the system. This brings numerous risks, such as opacity over governance structures, creating an unnecessary focus for regulatory attention. But decentralized stablecoins like Terra aim to avoid these governance issues by maintaining their pegs through algorithms instead of through vast reserves of cash and debt. 

Moreover, the recent LUNA crash has also exposed some major loopholes in the algorithm-backed stablecoins. Experts say that the industry needs to take action and address the concerns of the investors publicly. Some suggested that in order to stabilize the ecosystem, UST needs to move towards its $1 peg from its current $0.55 trade value. With this process, LUNA will be distributed, and the unit value will likely remain stable and modest. 

Should You Invest $1,000 In Terra Right Now?

Considering Terra’s strong fundamentals and price history, investors are curious to know if LUNA is still a buy-now crypto, even after the crash. Several market experts are still bullish on the future of LUNA and expect the token to recover in the future. Although many believe that the UST will take some time to be repegged, it is likely to recover sooner. LUNA, on the other hand, might take longer to regain its strength. But in the future, Terra would again position itself as a good buy in the market.  

Read Also: Terra (LUNA) Price Prediction

The Bottomline

Terra offers significantly lower transaction costs and continues to build a more rigid infrastructure with DeFi tools and assets that users can seamlessly enjoy. As a result, the majority of the industry experts suggest investors not get caught up in the panic and sell LUNA before it stabilizes after the carnage. 

eToro – The Best Platform To Buy Terra

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

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