Crypto/Luna: exchanges are likely to be the only winners

Too big to fail. That is the hope driving some crypto enthusiasts who see opportunities in the latest crisis. Luna — once one of the top 10 global cryptocurrencies by market capitalisation — lost 99.99 per cent of its value last week after its paired stablecoin TerraUSD collapsed. Investors in the duo have lost more than $45bn. Undeterred, speculators have been piling in.

In South Korea alone, 280,000 investors hold Luna, with nearly two-thirds having bought the token after the price started falling early this month. At about one-hundredth of a cent, down from nearly $100 less than a month ago, the reasoning is it does not have much further to fall.

Their logic is fallacious. Investor protection related to virtual assets is still at a nascent stage. That leaves investors with little recourse if the cryptocurrency is delisted.

On Wednesday, one of the biggest Korean exchanges, Korbit, announced it would stop supporting trading operations for Luna as of next week, in effect delisting it. Peer Bithumb is suspending support this week. Regulators have instructed cryptocurrency exchanges including Korbit to freeze assets linked to the Luna Foundation Guard, a fund set up by Terra developer Do Kwon.

There are about $160bn in stablecoins globally. For most crypto exchanges, listing requirements are far from stringent for new coins. With thousands of blockchain start-ups looking to list their coins, exchanges are overwhelmed by the task of screening each new token. In Korea, for example, there are more than 600 different types trading. It is a lucrative business for exchanges which take a fee of up to 0.25 per cent for each trade.

Listing criteria need to be more tightly defined. The number of new tokens is set to grow. Venture capital funding into blockchain start-ups grew eightfold last year. Exchanges, which make fees on massive crypto trading volumes regardless of the direction of the market, may end up being the winners from this trade.