The founder of cryptocurrency exchange, Binance, Changpeng Zhao, has revealed the reason Terra Luna suffered significant crash in its market value, costing holders -99.99% of their investment quarter-to-date.
Terra Luna had crashed from its selling price of $103.05, down to $0.003559, as investors scampered to exit their investment in the company, wiping off $35.91 billion from the market capitalisation, which currently stands at $603.4 million, according to Ripples Nigeria analysis of figures tracked by Coinmarketcap.
Terra Luna’s crash came at a period investors in the cryptocurrency market were taking their funds out, according to Ripples Nigeria report, resulting to the crypto market slumping by 16.65% in 24hour.
Following the decline in value, Binance suspended trading on Terra Luna, preventing its users from transacting on the cryptocurrency due to the extreme volatility experienced on the blockchain.
Explaining the reason for Binance decision to halt trading on Terra Luna, Zhao said his firm tried their best to help the blockchain avert the current situation, but the crypto exchange didn’t receive positive response from the company handling Terra Luna.
In a statement released on Friday via his Twitter handle, Zhao said the crash occurred due to over supply of Luna, without the knowledge of some users. He said the blockchain was advised to burn the extra minted Luna, but the handling of the situation was disappointing.
Zhao said the operators of Luna suspended trading initially, but resumed users transactions despite still having extra minted Luna, but users didn’t know that the oversupply would crash the cryptoasset once trading began again.
This led to Binance taking step to prevent its own users from trading Luna on its crypto exchange, which is the largest in the world.
The statement from Zhao reads, “At Binance we prioritize user protection. We made the decision to suspend LUNA and UST trading. Here’s why.
“An exponential amount of new LUNA were minted due to flaws in the design of the Terra protocol. Their validators have suspended their entire network, resulting in no deposits or withdrawals possible to or from any exchange.
“Some of our users, unaware of the large amounts of newly minted LUNA outside the exchange, started to buy LUNA again, without understanding that as soon as deposits are allowed, the price will likely crash further. Due to these significant risks, we suspended trading.
“While #Binance always aims to be neutral, helpful and protective of all users and industry peers, and we typically refrain from commenting on other projects, I will break that rule this time.
“I am very disappointed with how this UST/LUNA incident was handled (or not handled) by the Terra team. We requested their team to restore the network, burn the extra minted LUNA, and recover the UST peg. So far, we have not gotten any positive response, or much response at all
“(This is in sharp contrast to Axie Infinity, where the team took accountability, had a plan, and were communicating with us proactively. And we helped.)
“We know there are different opinions in the community, we felt suspending trading is the best way to protect our users at this time. We will continue to monitor the situation closely 24/7. All actions will be announced on @binance.”