How and why did LUNA crash? 

• LUNA’s crash was largely caused by its link to TerraUSD (UST), an algorithmic stablecoin. While most stablecoins are pegged against a specific dollar value or equivalent currently reserved in centralized banks, the UST stablecoin maintained its value through algorithms and computer-generated codes. The process of maintaining the $1 price equilibrium included burning and minting LUNA/UST to maintain the price of these tokens.
• For example, when 1 UST is minted, $1 worth of LUNA is burned and vice versa. Whenever UST starts losing its dollar peg, holders burn their stablecoin for LUNA, making UST gain profit and moving the price back to its peg. 
• However, during the bear market, a large amount of UST was dumped, causing the stablecoin to de-peg. This caused a ripple effect in an already downward market, driving more and more investors to sell and burn UST, thus minting more LUNA. This excessive mining led to a massive increase in LUNA’s circulating supply, thus crashing its price. The token’s circulating supply was around 345 million in April, which became 6.5 trillion on May 13th.[1]

Terra Luna’s revival plan

• Previously, the Terra Luna community approved a revival plan that involves a Terra Luna hard fork from the failed token, the creation of a new blockchain Terra 2.0 and a new token.
• LUNA’s crash made headlines back in May, sending shockwaves through the wider cryptocurrency space, with bitcoin (BTC) and ether (ETH) crumbling and cryptocurrency trading platform Binance (BNB) forced to suspend trading. The old LUNA coin was part of a dual-token system along with Terra’s US dollar-pegged stablecoin Terra USD (UST).
• Terra USD is an algorithmic stablecoin, which means that its peg to the US dollar was ensured by algorithms and game theory, using a series of smart contracts to keep the price at $1.
• When UST depegged from the US dollar (USD) on 9 May, UST redemptions massively inflated LUNA supply, driving the price down by 99%. The UST crash happened as the algorithms could not keep up, forcing the Luna Foundation Guard and its governance team to sell their bitcoin reserves to save the stablecoin.
• BTC dropped to $27,000 and wiped out nearly $400bn of the total cryptocurrency market value over the May period.[2]

What is LUNA 2.0?

• As proposed by Kwon, the Terra blockchain underwent a hard fork, with the launch of Terra 2.0 and the old LUNA tokens being renamed as terra classic (LUNC). Kwon’s fork proposal passed with 65.5% majority approval.
• The snapshot for Terra 2.0 provided by Kwon gives an idea of how the chain upgrade would work and states that the new Terra will be created without the algorithmic stablecoin.
• The Terra Builders Alliance has provided technical details on integration, decentralized applications (dApps) migration, and a guide to rebranding the original Terra chain as ‘Terra Classic’.
• The old token was renamed terra classic (LUNC), and while the original Cosmos chain will continue to operate, the option to mint or burn coins will be disabled. The new blockchain was launched on 28 May 2022.[2]

Why Terra (LUNA) deserves a second chance

• While LUNA’s crash has significantly impacted the overall crypto industry and created worries for new entrants, we have to remember that it’s not an isolated event. Over the last few years, the crypto industry has seen its fair share of ups and downs. New tokens have emerged with glowing promise, only to fail miserably. Some due to project failures, some due to scams and rug pulls. 
• One of the positives in the LUNA case was the continuous efforts and commitments of the Terra team. The team worked tirelessly to support the community in this crisis and implement a revival plan that actually separates itself from the previous mistakes. Terra’s operations are still conducted within legal parameters. 
• Since 2019, LUNA’s achievement in the blockchain space has been extraordinary. The token had maintained consistent growth and correction even during the harshest of market conditions. The crypto community should value that Terra has admitted its mistakes, and the concept of Terra 2.0 shows that it has already started to move away from the previous flawed concept.  
• We are not saying that LUNA 2.0 will take off, because the algorithm value proposition massively contributed to LUNA’s growth over the years, even though the same aspect caused its eventual crash. Terra 2.0 might not have a new innovative concept, but it sticks to the basic fundamentals of crypto, which is what the community truly needs right now. 
• So, although it’s not financial advice, we do think that it’s worth giving Terra a second chance, considering the immense support and contribution of Terraform labs, and its commitment to the community.  [1]

Methodology

• Look at the crosschain.core.fact_hourly_prices table for the price of LUNA 2.0

• Investigate terra.core.ez_swaps for swaps from axlUSDT or axlUSDC to LUNA

  'ibc/B3504E092456BA618CC28AC671A71FB08C6CA0FD0BE7C8A5B5A3E2DD933CC9E4' --axlUSDT
  'ibc/D189335C6E4A68B513C10AB227BF1C1D38C746766278BA3EEB4FB14124F1D858' --axlUSDC
  

• Also look at the Top 10 Traders causing all the action of buying LUNA on between 08-Jan and 10 Jan 2023.

Top 10 Swapping Wallets by $LUNA tokens bought in $USD worth

• terra1fhgqfnef2wvz6rnmuc9mxupwq0mmks7ka8eu9r is the shining star with this single wallet buying 300K worth of $LUNA in about 700 transactions.
• This wallet along bought 200K $LUNA tokens in between 08-10 Jan 2023.
• On a close look this wallet seems to belong to an individual investor possibly a whale that was created in Nov 2022.
• Seems like this wallet knew something before everyone one or is just another LUNA fanatic.

Luna bought vs Sold between 08-10 Jan 2023

• A total of $1M $USD of LUNA was bought and an equivalent amount was sold in terms of $USD.
• If we are to look in terms of $LUNA amount, we see 0.6M $LUNA bought, and as the price went up more people sold $LUNA.
• The number of swappers tell the same story, with about 1500 wallets buying and selling.
• The number of new swappers tell a different story where a lot more people are first time swappers that are selling $LUNA.

Buying and selling over time

• If we closely look at the swap Volume, we see a spike of $LUNA being sold actually before seeing a huge amount of $LUNA being bought.
• Jan 9 saw 2 selling spikes of 102K $USD at 10:00 UTC and 232K $USD at 1400 UTC, before eventually a 224K spike of buy at 1700 UTC followed by a 264$USD worth of $LUNA sold.
• The swap transactions suggest that it was not a lot of wallets that were selling or buying before the big pump, however after the big pump we see a lot more wallet activity.

Luna Price Action

• We look at the closing price of LUNA, 7 day and the 30 day average.
• Jan 09 and Jan 10 saw action price going up from 1.3 $USD to 1.55 $USD.
• The 7-day moving average going up as well.
• 30-day moving average did fell, however seems to be coming up with the recent rise.

Other major reasons

• The Lawsuit against Terraform Labs by Albright Capital had accused Terraform Labs and its executives of deceptively promoting UST, LUNA, and related Terra cryptocurrencies had been dropped at the very similar time.

> Investment firm Albright Capital has voluntarily dismissed its fraud charges against the failed Terraform Labs and its executives including Do Kwon. > > Following the historic Terra collapse in May 2022, Albright Capital, law firm Scott +Scott, Bragar Eagel & Squire independently filed class actions against Terraform Labs. > > Albright Capital in its lawsuit alleged that Terraform Labs had engaged in the deceptive promotion of the UST, Terra (LUNA), and related Terra cryptocurrencies. > > In addition, Terraform Labs executives including Do Kwon were accused of withdrawing funds from the Terra ecosystem for their personal gains. > > However, according to a motion filed on Jan 9, Albright Capital has moved to voluntarily dismiss the class action against Terraform Labs and Do Kwon without prejudice. > > Other defendants named in the dismissal motion include Luna Foundation Guard, Delphi Digital, Jump Trading, Nicholas Platias, Jose Macedo, Kanav Kariya, and Remi Tetot.

• We see other crypto folks to come to this news and that when most of the other public knew about this and this was about the time the Twitter Channel posted about this.

  
  
  
  
  
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Conclusion

• The price action seems to be a mix of case being dropped, someone knowing of this and buying $LUNA.
• After that it just has been positive market reaction with BTC taking off and with it other ALT coins like $LUNA.