The Terra blockchain has been stopped amidst fears that the cheapening $LUNA token could lead to a governance attack, essentially a take over of the network.
Terra ($LUNA), which has seen a price collapse of over 99% within the past week, also serves as the protocol’s governance token. Governance tokens let holders submit and vote upon the governance proposals related to upgrading a blockchain protocol.
However, if one gains control of over 50% of a governance token’s supply, he could theoretically alter the protocol in a malicious way.
Terra’s collapse is largely due to the destabilization of the $UST peg to the dollar which led to conversions of $UST for $LUNA en masse.
Worth $119.22 at its peak, $LUNA, the sister asset of the troubled cryptocurrency Terra USD ($UST), collapsed to almost $0 overnight.
As of May 12, 2022, the token was trading at $0.016 with a market capitalization of only $533K , a dramatic fall from $28 billion just a week ago.
Here are some reactions as $LUNA almost vanished in the space of a week:
TerraUSD ($UST), designed as an algorithmic stablecoin that should always be worth $1, lost its peg to the U.S. dollar dropping to as low as 36 cents.
It is currently worth $0.34.
The crisis surrounding the $UST dollar peg has seen users make large withdrawals from Terra-based Anchor protocol. Since last Friday, Anchor’s UST deposits have plummeted from 14 billion $UST to about 2.1 billion $UST.
Contributors to Anchor have proposed reducing to 4% a yield of 19.5% on terraUSD ($UST) deposits in an effort to make its yield reserves more sustainable.
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RECOMMENDED READING: Bitcoin Price Hits 9-Month Low Amidst Terra Volatility
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