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Terra Luna was one of the most popular cryptocurrencies, with their stable-coin becoming the THIRD LARGEST, and, their LUNA Token entering the Top 10, with a market cap of $41 BILLION DOLLARS at the peak.
Over 100 projects were built within the Terra Ecosystem and it quickly gained widespread adoption, including one that got EVERYONE’S attention and drove a LOT of interest for the project: a 20% YIELD ON YOUR MONEY.
However, the entire platform quickly collapsed.The most plausible scenario is that, according to BusinessInsider: someone bought $1 Billion worth of UST while, at the same time, shorting Bitcoin. Eventually, the wallet sold…and, the combination of a large withdraw – during a time where cryptocurrency was falling, caused a bank run, where people lost faith in Luna…and once that trust was gone, it would never recover. To me, this seems like the most plausible case…especially, when the founder himself was PUBLICLY taunting Billionaires to do an attack to “see what happens,” as outlined by CoffeeZilla.
This should go without saying…that, the higher the potential return…the more risk you take that you might lose money. Even though I’m directing this towards cryptocurrency, this also applies throughout EVERYTHING: there is no scenario where earning above 10% is “RISK FREE” … and, there’s a reason why even the most reputable banks don’t manage to pay more than 1-3% interest, at the very most.
Truth be told…I see no other option, besides – ONE DAY – stable coins will NEED to be regulated, and strictly enforced to ensure that they’re properly backed and operated. After all, most platforms have NOTHING in place to prevent you from borrowing cryptocurrency – taking it to another platform – borrowing MORE cryptocurrency – and repeating that over and over and over again…until, eventually – you have $50 for every $1 you deposit.
My biggest concern is that the entire market could be propped up by over-leverage…and, there’s no way to accurately verify how much of this is pure speculation, and, how much is reality that we have a major problem on our hands – IF the entire industry sees a large and sudden drop, all at once.
That’s why, at some point…regulation will come in to play…and, I think…in the big picture, it will add a LOT of legitimacy for so many more projects, and that SAFETY will keep even more people coming back on a regular basis. Until then…just play it safe, don’t invest more than a SMALL part of your portfolio, understand that EVERYTHING has a risk directly in proportion to the chance that it will fail.
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