Terra Crash And Its Ripple Effect Across The World of Crypto

Terra's Infamous Rise and Fall

From the heart of South Korea, an unknown payments app surfaced in 2018. And within a few months, plus several big-league investments, Terra quickly rose to become a crypto ecosystem, worth around $60 billion. In no time, the Terra network, its LUNA token, and UST stablecoin soon became the talk of the crypto space. But this was only going to last for a while.

By May 7,  Terra's then-$18-billion algorithmic stablecoin terraUSD (UST) lost its dollar peg and began falling uncontrollably. Barely two days after (May 9), the UST had fallen to around 35 cents, and just as expected, its sister token, LUNA, also began nose-diving. By May 12, LUNA fell off the edge and went from $80 to many fractions of a cent.

Terra crash sent a shock wave across the crypto industry, and the visions of the platform's leader, Do Kwon, to create a crypto payment system that will be price-stable, may now be a thing of the past.

Meanwhile, it might also be important to note that the platform's hierarchy is not the only recipient of the impact of the Terra crash.

Billionaires Have Become Poorer

Following the Terra crash, the CEO of Binance, Changpeng Zhao (CZ), went to Twitter to announce his status of being “poor again.” Maybe not literally, but he may not have found better words to explain his situation after losing billions of dollars in cryptocurrency to the Terra crash.

According to one of CZ's tweets, Binance held 15 million LUNA tokens after investing $3 million in the Terra network. Indeed, it was a great investment because, at LUNA's peak price, that asset would be worth $1.6 billion. Sadly, however, a month later, Binance's LUNA holding is now worth just above $2,000.

But CZ is just one of many billionaires who's had their fortunes eroded as a result of the market crash.

Meanwhile, Coinbase CEO Brian Armstrong and Vitalik Buterin of Ethereum are among the crypto billionaires who have also been open about losing their fortunes. But while many of them may not have pointed to Terra, it is safe to say that an untold number of investors lost their savings to the network's crash.

Regulators Are Keeping A Close Look

Without a doubt, the collapse of the UST and LUNA has once again brought crypto under the spotlight. After the crash wiped out about $45 billion in human wealth, albeit overnight, attention has once again shifted to regulatory frameworks around crypto.

Shortly after the incident, US Treasury Secretary Janet Yellen made a rallying call for all stablecoins to be regulated by 2022 end. Recall, stablecoins boasted of stability as a result of being pegged to one commodity or fiat currency. But as it turns out, maybe not really. Furthermore, reports claim that the Securities and Exchange Commission (SEC) may have already launched an investigation into the case.

Similarly, Asian regulators have also begun to act, with South Korean authorities reportedly launching an “emergency investigation” into the case as well. Whereas, Singapore is also having a rethink already, about its approach to the regulation of digital assets.

Recall that in April, Singapore’s parliament passed a law last month to increase the scrutinization of firms just like Terra. That is, firms that are registered domestically, but mainly operate abroad.

It all becomes weird that under Singapore's Payments Services Act 2019, firms like Terra which offer payment instruments, such as algorithmic stablecoins, must possess a Digital Payment Token Services (DPTS) license. But interestingly, Kwon's business had no DPTS license or an official exemption when investors' money went up in smokes, per the Financial Institutions Directory of Singapore.

In all, South Korea’s Financial Supervisory Service (FSS) has also extended a hand of partnership to global regulators. The FSS claims that there's a need to work together if crypto is to be properly regulated.