The Earth blockchain and its ecosystem in full descent into hell

Faced with the collapse of its stablecoin terra usd and cryptocurrency luna, the Terra blockchain had no other solution than to close.

The descent into hell continues for the Terra blockchain, following the collapse of its stablecoin terra usd (UST) and its cryptocurrency luna. This Friday morning, the Terra blockchain was shut down for the second time within hours. “The Terra Blockchain has officially stopped at block 7607789. The Terra validators have shut down the network to come up with a plan to rebuild it,” he tweeted the latter on Friday.

Concretely, this stop means that no new block can be generated on the blockchain from its 7607789 block.

Recall that, a bit like a digital book, the blockchain (or chain of blocks) brings together all the blocks (batches of transactions) of a network, from the oldest to the most recent. The two best known blockchains are bitcoin (and its own cryptocurrency bitcoin) and ethereum (and its own cryptocurrency ether). Terra is a blockchain created in 2018 and which, like any blockchain, has block “validators” to protect it.

How did we get here? The stablecoin of this blockchain, the USD (or UST) land has collapsed. As we have explained here, it is a stablecoin that should respect parity with the dollar (1 dollar = 1 UST). But with the extreme volatility of cryptocurrencies in recent days, the UST algorithms have not held up. And the gap between the value of the FSO and that of the dollar has widened. In an attempt to turn the corner, the Luna foundation, which oversees the Terra blockchain, had bought a stock of bitcoin in order to intervene in the event of a problem: it mobilized the equivalent of 1.5 billion dollars in bitcoin to bring back the UST broke even, but it wasn’t enough.

The FSO has so it lost more than 70% of its value on Thursday and is now worth about $ 0.17. Investors lost confidence and preferred to exit their funds or switch to other stablecoins that have withstood this week’s crisis better. However, to maintain its parity with the dollar, the FSO relies on algorithms that make arbitrage (in other words they sell or buy to profit from the price change) on the crypto luna, which is based on the same blockchain Terra. . It was this bond that drew Luna with her. Investors also massively withdrew their funds from Luna, which further amplified its decline.

Overnight, the price of the Luna cryptocurrency continued its decline, dropping 99.97%, ending at $ 0.00005 as of this writing. Within days, this cryptocurrency that was in the top 20 cryptocurrencies by capitalization, with the equivalent of $ 40 billion in circulation, has now dropped below $ 355 million in capitalization. “Sales demand has been so strong on the moon and cryptocurrencies that UST algorithms could not withstand this volatility shock,” sums up Laurent Pignot, financial analyst. And now it is the future of the blockchain that is clearly under threat.

A first attempt to quit

To restart the system, a first attempt was made to stop the Terra blockchain but it didn’t work. On Thursday evening, Terra was closed for two hours. In a tweet, the blockchain announced that its validators have “decided to shut down the Terra blockchain to prevent attacks on governance following the severe inflation of the cryptocurrency moon and the significant reduction in attack costs.”

In fact, a governance attack in particular on the cryptocurrency moon could have jeopardized the entire blockchain, and have consequences both on the stablecoin ecosystem and on the cryptocurrencies connected to it.

More news from the blockchain boss

When will the Terra blockchain work again? Will it even be able to function again someday? Difficult to know at the moment, the first attempt at reconstitution by its validators having failed. For his part, Terra’s blockchain boss Do Know, who has indicated he wants to find solutions to save his blockchain, hasn’t given any news since May 11 on Twitter.

According to Valentin Demé, a Cryptoast reporter interviewed on Thursday on BFM Crypto, there are not many options to save the FSO: it would require either the intervention of investment funds or billions of dollars in bailout.

Furthermore, like any blockchain, Terra also allows the creation of smart contracts (smart contracts) and decentralized finance services, such as deposit and loan services, explaining that the companies that offer the deposit of its UST stablecoin are also in difficulty. like the French company Just Mining.

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