Stablecoins created using algorithms, the coins Luna and Terra were not always ruined.

They became a “golden investment” in December of last year, with 1 Luna worth almost $116.

1 stablecoin equals $1.

Luna’s success stemmed from a financing scheme named Anchor, which offered obscenely high annual percentage yields (APY) of around 20%.

The Anchor protocol functioned similarly to a bank account.

For example, if an individual holds a $1000 Terra currency, but instead of selling it or trading it for Luna, he prefers to generate consistent earnings from his investment.

As a result, he joins an Anchor Pool, which provides a fixed 20% return on his investment.

Surprisingly, almost 72% of all Terra coin holders placed their coins in Anchor.

However, there were insufficient Terra coin borrowers.

Where did all the money come from, is the great question.

Terra was in high demand due to Anchor’s attractive interest rates.

Every other cryptocurrency investor rushed to buy Terra and deposit it in order to generate stable earnings.

Then a new proposal from Terra founders arose, stating that the yield rate would shift from 20% to 20%.

There is no mention of whether this would be an increase or decrease.

Anchor’s dashboard at the time showed that there was just one borrower for four lenders.

This meant that there was increased supply but relatively little demand.

To verify that the supply and demand ratios matched, the Terra founder began putting monies in the Terra reserve.

Essentially, the coin’s originator was buying more and more coins in order to send out interest rates to investors.

Borrower rates, on the other hand, remained unchanged.

Luna’s supply eventually increased, and its price dropped.

The balance process broke down as more people dumped the Terra coin, and both the Terra and Luna coins crashed.

The Terra coin price plunged to a staggering 0.225 on May 11, according to Coinmarketcap.