Faced with the collapse of its stablecoin the terra usd and the cryptocurrency luna, the Terra blockchain had no other solution than to shut down.
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 in the space of a few hours. “The Terra Blockchain has officially stopped at block 7607789. Terra validators have shut down the network to come up with a plan to rebuild it,” the latter tweeted on Friday.
Concretely, this stop means that no new block can be generated on the blockchain from its block 7607789.
As a reminder, 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 secure it.
How did we get here? The stablecoin of this blockchain, the terra USD (or UST) has collapsed. As we explained here, it is a stablecoin supposed to respect parity with the dollar (1 dollar = 1 UST). But with the extreme volatility of cryptos in recent days, the UST algorithms did not hold up. And the gap widened between the value of the UST and that of the dollar. In an attempt to turn the corner, the Luna foundation, which oversees the Terra blockchain, had bought a stock of bitcoins to be able to intervene in the event of a problem: it mobilized the equivalent of $ 1.5 billion in bitcoins to bring back the UST broke even, but it wasn’t enough.
The UST has thus lost more than 70% of its value on Thursday and is now worth around $0.17. Investors lost confidence and preferred to exit their funds or switch to other stablecoins that weathered this week’s crisis better. However, to maintain its parity with the dollar, the UST is based on algorithms which make arbitrages (in other words which sell or buy to make a profit from the variation in prices) on the crypto luna, which is based on the same Terra blockchain. . It was this bond that dragged luna down with her. Investors then also massively withdrew their funds from luna, which further amplified its decline.
Overnight, the price of the Luna cryptocurrency continued its plunge, falling 99.97%, ending up at $0.00005 at the time of writing. In the space of a few days, this cryptocurrency which was in the top 20 cryptocurrencies in terms of capitalization, with the equivalent of $40 billion in circulation, has now fallen below $355 million in capitalization. “Sell demand was so strong on luna and cryptocurrencies that the UST algorithms did not withstand this volatility shock”, summarizes Laurent Pignot, financial analyst. And now, it is the future of the blockchain that is clearly threatened.
A first quit attempt
In order to restart the system, a first attempt to stop the Terra blockchain was decided but it did not work. On Thursday evening, Terra was shut down for two hours. In a tweet, the blockchain announced that its validators have “decided to shut down the Terra blockchain to prevent governance attacks following severe luna cryptocurrency inflation and significantly reduced attack cost.”
Indeed, a governance attack on the luna cryptocurrency in particular could have jeopardized the entire blockchain, and had consequences on both the stablecoin ecosystem and the cryptocurrencies linked to it.
More news from the blockchain boss
When will the Terra blockchain work again? Will it even be able to function again one day? Difficult to know at the moment, the first attempt of reconstitution by its validators having failed. For his part, the boss of the Terra blockchain, Do Know, who indicated that he wanted to find solutions to save his blockchain, has not given any news since May 11 on Twitter.
According to Valentin Demé, journalist at Cryptoast interviewed Thursday on BFM Crypto, for the UST to be saved, there are not many possible options: it would take either the intervention of investment funds or billions of dollars of rescue.
Moreover, like any blockchain too, Terra allows the creation of smart contracts (smart contracts) and services in decentralized finance, such as deposit and borrowing services, explaining that companies offering the deposit of its stablecoin UST are in turn put in difficulty, like the French company Just Mining.