South Korean Exchanges Warn LUNA Investors as UST Collapse Mirrors TITAN Saga

After a dramatic 90% market crash, LUNA, trading below $5, is now deemed a “cautionary item” by the popular South Korean cryptocurrency exchange UpBit.

Investors are unnerved after the embattled crypto project – Terra’s flagship stablecoin UST – lost its peg with the US Dollar.

Additionally, Bithumb also issued a warning to its investors while dealing with LUNA. In a bid to protect clients, the exchange designated the cryptocurrency as an “Investment Warning Item.”

LUNA’s Fate Hangs in Limbo

According to the crypto analytic platform, IntoTheBlock, the number of transactions reached a new high, representing a massive 13x increase against the previous two days as investors continue to rush to sell their UST positions. What does this mean for LUNA?

André Nakano de Melo, the CEO of TITANDAO, highlighted the current problem with UST and LUNA, which is that traders want to get both the tokens out of the exchanges “so they can exploit the arbitrage opportunity by redeeming UST for LUNA.” He also went on to add that “exchanges need to stop the outflows as they might not have enough tokens (UST and LUNA) for all traders that want to withdraw.”

While speaking with CryptoPotato, the CEO said,

“The cold storage of tokens on exchanges does not imply they actually have all tokens for redemption. It is like a bank: we see a digit in our bank account, but if everyone decides to go and withdraw the money on the same day like in a bank run, the bank cannot provide all the physical cash needed.”

Is LUNA Following the Destructive Path of IRON?

Terra’s debacle mirrors that of TITAN last summer when a token backing up the stablecoin IRON, called TITAN, dropped to zero as uncertainty choked the market. It went on to be known as the world’s first large-scale crypto bank run. Investors rushed to redeem IRON quickly after the peg of IRON to USDC broke. This triggered a death spiral in TITAN’s price, which was used as collateral to mint the stablecoin.

The collateral damage on LUNA for UST’s significant deviation was epic. According to Melo, LUNA is following a similar death spiral as TITAN. He said,

“UST was trading at close to $0.2 today, so confidence will be hard to regain. I do believe LUNA will eventually go even further down as IRON stablecoin was backed by $0.75 USDC while UST is only backed by LUNA. There is not too big to fail in crypto.”

At times of market stress such as this, it remains to be seen if LUNA manages to prove its viability.