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.
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.