Terra is different. Kwon designed the peg using a parallel cryptocurrency, Luna. By design, traders can swap $1 worth of Luna for one Terra. So if the value of Terra falls below $1, traders have an incentive to swap it for $1 worth of Luna, banking a profit and reducing the supply of Terra until the price recovers. The appeal of this approach for diehards is that this eschews real-world financial assets like bank deposits which are subject to government oversight.
Kwon’s fans, known as Lunatics, considered such an approach heresy. Their aim was to build a permissionless, decentralised financial world free from intermediaries like banks and custodians. Wednesday’s plunge is a reminder that they can have ideological purity or stability, but not both.- TerraUSD, a so-called stablecoin that is designed to be worth $1, was trading at 34 cents as of 1240 GMT on May 11, according to price site CoinGecko.
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