The reason why Luna failed is because it is a blockchain platform primarily for Decentralized Finance projects. I have used a bunch of their projects first hand – Terra Station, Anchor, Mirror.
Luna went from being a blue-chip top 10 market cap blockchain project, to crashing -90% in one day, falling to rank 213.
The core application of Luna was a blockchain application called Anchor Protocol which supported the creation of a Decentralized Stablecoin called UST, which basically served as the “central bank” for which all others could build applications on top. For example, Mirror Protocol was a synthetic stock market application where you could speculate on stocks, and use UST as the main currency.
UST was backed by Luna token. So if Luna crashed, UST crashed, and vice versa. They basically suffered from a bank run, where everybody tried to withdraw their UST at the same time, and there was not enough collateral to go around.
All in all, I believe the underlying technology is great, but as Reid Hoffman says, it is business model innovation that drives value, not technological innovation.
We have not yet found a way to make a decentralized stablecoin sustainable & stable. This is a great learning lesson and experiment for the blockchain industry.
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