The coin, which was among the top ten in terms of capitalization at the beginning of May, plummeted from $80 to $0.5 per unit in a day!
Before the coin’s collapse, one of its major investors put the US, a Terra coin, the issuing LUNA project, up for sale for about $300 million. It caused panic in the market, and the coin’s exchange rate plummeted significantly. Attempts by the project administration to salvage the situation by putting up for sale all of its assets that provide value to the UST coin did not help. After what happened, the project administration decided to hard-forward the LUNA network and offered “substitute” coins to the coin holders. Their price, however, is also falling.
The South Korean authorities are now investigating an employee of Terraform Labs, the issuing company of LUNA. It has been reported that the investigation is due to eighty-one investors’ collective complaints of fraudulent practices. However, the company has claimed the collapse of the coin was not a fraud or any attempt to manipulate the price of the currency.
The claims against the issuer did not stop with the investors. A month after the collapse of the coin, a class-action lawsuit was filed in the Northern District Court of California against the US subsidiary of cryptocurrency exchange Binance. According to the document, the plaintiffs believe that UST and LUNA were listed on the exchange as unregistered securities, which violated US federal laws. Although America is still undecided on what type of asset cryptocurrency is and what laws apply, the lawsuit has been accepted for review. Among other things, it states that the crypto-exchange advertised Terra Coins as fiat currency-backed assets with a high degree of security, which misled investors and caused them to lose their money. It is highlighted that the plaintiffs are outraged by the placement of the upgraded LUNA coins after their hard forward on Binance. They are demanding damages from the exchange, trading commissions, and legal fees, as well as the costs of official representatives. Experts do not give clear predictions about the outcome of the lawsuit: on the one hand, the court may rule that investors are wrong because they voluntarily invested in currencies, and plaintiffs will have to redirect their efforts to new lawsuits; on the other hand, the court may grant the claim because the exchange has already been involved in high-profile cases involving the laundering of billions of dollars.
Recall that LUNA, part of the Terra ecosystem that created a single space for fiat currencies and blockchain coins, was an additional UST coin. As soon as the price of this token, also owned by Terra, was less than one dollar, the system automatically issued LUNA coins, which were exchanged for stable coins until the price stabilized at one dollar. The ecosystem was based on the Proof-of-Stake algorithm, which rewards users who have the most coins and do not sell those coins. This method of passive earning, also called staking, is the exact opposite of mining. It is impossible to create new coins as their creators have already determined their quantity.