Understanding the Risks of Cryptocurrency. Image by Freepik Introduction Cryptocurrency has become increasingly popular in recent years, offering a decentralized and fast alternative to traditional currency. However, despite its many benefits, it is important to be aware of the risks involved. In this article, we will explore the various risks associated with cryptocurrency. Market Volatility: One of the main risks of cryptocurrency is its high volatility. The value of cryptocurrency can fluctuate greatly in a short period of time, making it difficult to predict and potentially leading to significant losses. Lack of Regulation: Another risk associated with cryptocurrency is the lack of regulation. The cryptocurrency market is largely unregulated, leaving investors vulnerable to fraud and scams. Additionally, the anonymity of cryptocurrency transactions can make it difficult to recover lost funds. Security Concerns: Cryptocurrency is susceptible to security risks, including hacking and ...
The company that created TerraUSD and Luna, which caused the crypto market to crash last month, has launched a new coin. Critics are enraged.
When two cryptocurrencies crashed about three weeks ago, the consequences were catastrophic. Their demise caused over $500 billion in losses in the broader cryptocurrency market. Many investors saw their life savings vanish. Others considered suicide. People have called for criminal investigations into the company at the center of it all, as well as government regulation of the larger market.
However, the team behind the failed coins is back at work. Terraform Labs, the startup behind TerraUSD and its sister cryptocurrency Luna, both of which have dropped to nearly zero in value, began trading a new digital coin called Luna 2.0 on Saturday as part of their revival strategy.
"A chance to rise up anew from the ashes," Terraform Labs founder Do Kwon wrote in his plans announcing the new cryptocurrency.
The old Luna coin is still available for purchase
The coin, which trades under the ticker symbol LUNA, replaces the previous Luna cryptocurrency. Investors who lost money on Terraform Labs' previous coins may be eligible for free tokens based on a predetermined ratio. The old Luna coin is still available for purchase, but under a new name, Luna Classic. On cryptocurrency exchanges, it is known as LUNC.
The new Luna coin has had a rocky start, losing more than 75% of its value in its first hours and regaining some of it in subsequent days. According to Coin Gecko, a website that tracks cryptocurrency prices, the coin was trading at just above $8.50 as of Tuesday evening — or roughly half the price it started at.
However, despite its ups and downs, the release has attracted intense scrutiny from cryptocurrency analysts, investors, and critics. It exemplifies a broader issue with the cryptocurrency market. They claim: companies can sell whatever they want without fear of regulation or enforcement, putting ordinary investors at risk.
"It’s the little guy who’s being sold false promises [and] who’s getting absolutely torn apart by this," said Molly White, a software developer who runs the website Web 3 Is Going Just Fine. "It’s just an enormous failure on the part of regulators."
According to a Terraform Labs spokesperson, the decision to launch a new cryptocurrency was made with strong community support. And the company is excited about what the future holds.
Kwon launched the Luna cryptocurrency
Kwon, a Stanford University-trained engineer, founded Terraform Labs in 2018 with the goal of transforming modern financial systems. That same year, he launched the Luna cryptocurrency. In 2020, the company began selling TerraUSD as a stablecoin. (The value of these coins is typically linked to a safer asset, such as the US dollar.)
Experts said Kwon's TerraUSD was a riskier project than other stablecoins on the market. It was not supported by a reserve asset, such as cash. It instead used an algorithm to keep its value around $1 by tying it to the supply of Luna currency.
For a time, the value of the Luna cryptocurrency skyrocketed, spawning a community known as "Lunatics". It was worth slightly more than $116 in early April. However, in early May, for unknown reasons, cryptocurrency investors began dumping TerraUSD in droves. Causing it to lose its peg to the dollar and spiraling Luna's value out of control.
In the days that followed, the value of Luna and TerraUSD continued to fall. Eventually losing $60 billion in value and causing over $500 billion in losses to the broader cryptocurrency market, according to industry data.
Many investors were outraged, posting on Reddit, Discord, and Twitter about how they put all of their savings into Luna and TerraUSD only to see it vanish in days. Some people posted about their intention to commit suicide. According to media reports in Taiwan, a man committed suicide after seeing his $2 million in Luna currency plummet to around $1,000.
However, Terraform Labs announced last week, amid intense scrutiny from lawmakers and crypto industry critics, that it intends to launch another cryptocurrency as part of its "revival strategy."
Airdrop Luna
According to Terraform Labs, it will "airdrop" or provide new Luna tokens to many people who lost money at the rate of 1.03 Luna coins for every Luna Classic they held.
A number of cryptocurrency investors expressed their displeasure and intention to dump the new coin.
The chief investment officer of crypto asset management firm Bitwise, Matt Hougan, stated that his company has no plans to invest in the new coin. "With a 10-foot pole, we wouldn't touch Luna 2.0," he said in an interview.
Hougan believes that stablecoins that use algorithms to maintain their value will fail. Rather, they must be backed up by an asset. He also believes that the new Luna coin will do little to restore Kwon and Terraform Lab's reputation among crypto investors.
“The collapse thoroughly damaged confidence in the team,” he said. “I suspect there’s just no coming back from it.”
When numerous cryptocurrency scams
Hougan, on the other hand, believes there may be a silver lining. He believes that, similar to 2018, when there were numerous cryptocurrency scams involving initial coin offerings. Which prompted government scrutiny, the same could happen with stablecoin regulation in the coming months.
“I suspect what comes out of this process is more regulations on the stablecoin front,” he said. “More enforcement actions from the SEC. And a stronger crypto industry as a result.”
Meanwhile, White of Web 3 Is Going Just Great believes Kwon's ability to mint a new cryptocurrency so soon after his previous project failed so spectacularly is a failure of the crypto world's broader regulatory and enforcement mechanisms. "You can just keep doing what he's doing," she added. "And that’s exactly what he’s doing."
Despite the fact that South Korean and American regulators are investigating the collapse. She remains skeptical that any broad action will be taken against Kwon.
“It strikes me as unlikely that they would take any sort of broad action against these types of things,” she said. “Or any action that would actually be more impactful than just sort of whack-a-mole.”
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