About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Educating Retail: Lessons from the Terra-Luna Collapse

Subscribe to our newsletter

By Joe Jowett, CEO, StrikeX.

The collapse of Terra has been one of the most significant events in the digital assets marketplace this year. The gains in the sector during the pandemic are now well-documented – Coinbase’s user base more than doubled between late 2019 and 2021 and Bitcoin saw a 300% increase in valuation in 2020.

As the number of users on trading platforms has stabilised in 2022, users have found themselves looking for more security in trading as a result of inflation and geopolitical tensions. The decline in Terra’s market valuation from $41 billion to $6.6 million in May after de-pegging from the US dollar saw investors’ worst fears realised.

More than 15% of current online retail investors only began trading following the onset of the pandemic. Many of these are in the Millennials and Gen Z age groups, making it vital to educate young, inexperienced traders. Newer traders may be unaware of the potential risks of retail trading, and with tighter regulation around crypto looming, the onus is on trading platforms to provide the necessary education and assistance for new users.

The warning signs

The Terra crash did not come entirely out of nowhere, with reports highlighting concerns over the issues of the stablecoin pegging against the US dollar. Some found Terra’s associated Anchor protocol unsustainable, whereas others could not see the possibility of creating a currency and assigning it a specific value without collateralised reserves.

Terra was built as an algorithmic stablecoin, using its satellite asset Luna to absorb volatility and maintain Terra’s value. If Terra’s price began fluctuating above or below $1, people could use Terra to buy Luna, or vice versa, therefore maintaining Terra’s trading price. Whereas other stablecoins would keep an equivalent amount of what they were pegged to as reserves, Terra’s worth was predicated entirely on Luna.

While innovative, it is unsurprising in retrospect that the Terra-Luna collapse occurred. As an algorithmic stablecoin, Terra’s stability was always purely theoretical. When the price of Bitcoin dropped in early May, Terra holders mass converted Terra into Luna, creating an oversupply of Luna tokens. This resulted in a crash of the value of Terra and Luna to as low as $0.26 and nearly $0 respectively.

Many of the investors who were hurt by the collapse would not have seen it coming. Stablecoins are billed as a reliable investment in the unpredictable world of crypto, making it an attractive choice for young investors to hedge their bets. Greater transparency and education will empower users to make informed decisions and identify red flags to help avoid being swept up in another potential Terra style collapse

Regulation looms

Stricter cryptocurrency regulation is coming, it is a case of when, not if. The Terra-Luna collapse has brought to the fore the importance of protecting consumers, with US Treasury Secretary Janet Yellen speaking out in favour of regulating stablecoins recently.Terra is not the only stablecoin experiencing a crisis: Tether, also pegged to the US dollar, has seen fluctuations in value and heightened scrutiny over its backed assets.

Since the start of 2021, the UK government has had stablecoin regulation on its radar, and in April this year announced its plans for stablecoin regulation as part of the UK’s initiative to become a ‘crypto hub’ It remains to be seen how regulation will affect the crypto world – the EU’s planned Markets in Crypto-Assets bill may include a requirement for stablecoin issuers to hold capital funds equivalent to 3% of their reserve assets The UK, meanwhile, has the opportunity to introduce alternative regulations that may be more beneficial for issuers and holders alike.

Ultimately, it is up to issuers and online trading platforms to be proactive to further legitimise themselves and avoid harsh sanctions. Proving transparency and responsibility will be crucial for trading platforms to show that they have their consumer’s best interests in mind, and therefore comply with legislations before they are put into place, without stifling any innovation or democratisation.

Democratising cryptocurrency

The appeal of cryptocurrency lies in its fair, decentralised approach that removes central banks from controlling the transfer of capital. Yet if trading platforms do not educate their users responsibly, regulations may be put in place that bring them closer to financial institutional systems. It’s important to remember that there is a barrier to entry for crypto – a recent study saw 57% of respondents citing a lack of knowledge as the main barrier from investing in crypto, while 60% of those surveyed identified themselves as ‘not very’ or ‘not at all’ knowledgeable about crypto.

Consequently, educational tools need to be provided by trading platforms. Tutorial libraries, safety mechanisms, and news aggregators are all features that platforms can implement to empower retail traders and help them reap the rewards of crypto while making informed decisions.

StrikeX’s upcoming flagship trading platform will do just that. Cryptocurrency should be accessible for all, and empower those marginalised by the traditional financial system. By giving users the control to trade tokenised assets and crypto on the same platform anytime, anywhere, trading can democratise the entire financial ecosystem. After all, crypto is for the people – let’s give them the education they deserve.

Subscribe to our newsletter

Related content


Recorded Webinar: Enhancing Buy-Side Trading Efficiency: Navigating Interoperability and AI in Real Workflows

Enhancing Buy-Side Trading Efficiency: Navigating Interoperability and AI in Real Workflows Emerging capabilities in AI and interoperability are transforming trading workflows, with the promise of heightened levels of collaboration and personalisation resulting in greater efficiency and performance. The potential of these new technologies is encouraging financial firms to modernise their trader desktops and streamline operational...


Trading Technologies Unveils Futures TCA and Multi-Asset Trade Surveillance Solutions

Capital markets technology provider Trading Technologies International, Inc. (TT), has introduced two new offerings to its solution suite, enhancing its Data & Analytics and Compliance business lines: TT Trade Surveillance and TT Futures TCA. TT Trade Surveillance, powered by TT’s proprietary SCORE machine learning algorithm, expands the company’s surveillance capabilities across multiple asset classes, including...


TradingTech Summit MENA

The inaugural TradingTech Summit MENA takes place in November and examines the latest changes and innovations in trading technology and explores how technology is being deployed to create an edge in sell side and buy side capital markets financial institutions in the region.


Impact of Derivatives on Reference Data Management

They may be complex and burdened with a bad reputation at the moment, but derivatives are here to stay. Although Bank for International Settlements figures indicate that derivatives trading is down for the first time in 10 years, the asset class has been strongly defended by the banking and brokerage community over the last few...