Prabusirea pretului criptomonedelor LUNA si UST

The collapse of the price of LUNA and UST cryptocurrencies explained in


The Terra money machine crashed almost entirely on Wednesday, May 11, 2022. The stable UST currency remains below $ 1 for the third day in a row, and LUNA, its token brother, fell nearly 97 percent from its 2022 high. The near-complete failure of one of the most popular decentralized finance (DeFi) cryptocurrencies is an important lesson in the systemic risks of algorithmically stable currencies.

(CoinDesk Research, Anchor Protocol Dashboard)

To understand why the UST collapsed last week is to understand Achilles’ heel – the Anchor lending protocol.

One of the first signs that things were going badly for this stable came when UST deposits on Anchor began to decline on Saturday, May 7, 2022.

Anchor offers users top returns on the crypto market, up to 20% per year for those who block UST on the platform. Before UST began its decline on Saturday night, Anchor hosted no less than 75% of UST’s entire current supply. Specifically, $ 14 billion equivalent to UST out of a total current supply of $ 18 billion.

With so much UST stuck in Anchor, it became clear that most investors were buying stablecoin with the sole intention of reaping those very high returns offered by Anchor. Depending on who you ask, Anchor’s relationship with UST has been either an ingenious mechanism for producing stable currency or a wasteful marketing fund to attract unfair capital.

Critics have argued from the outset that Anchor’s high yields are unsustainable, artificially supported by the builders of Terra Terraform Labs (TFL) and its big supporters. A drop in yields, they say, would have sent UST depositors to leave Anchor (and UST) in search of higher yields.

The system looked similar to that of a young Uber user, in which the capitalists subsidized people’s travel taxes in a long-term attempt to gain market dominance. Instead of lower taxi fares, inflated Anchor yields were used here to pull people into the UST ecosystem.

The problem, according to critics, is that TFL and its partners cannot afford to subsidize investors indefinitely. At some point, the strategy will prove unsustainable, and Anchor customers (and UST owners) will be forced to abandon the project.

Although Anchor has never been forced to cut its yield rates significantly, UST deposits fell sharply earlier this week from $ 14 billion to just $ 3 billion. Such a significant reduction in the main center of the UST has practically signaled a massive loss of confidence in the entire Terra protocol. With few other use cases for UST (beyond Anchor), most of the withdrawals from the platform have probably reached the open market.

(CoinDesk Research, TradingView)

As expected, the massive leak from Anchor on the open market contributed to a major selling pressure on the Terra ecosystem.

UST, a so-called stable algorithmic currency, works with its brother token, LUNA, to maintain a price around $ 1 using a set of on-chain holding and burning mechanisms. In theory, this mechanism should ensure that the US $ 1 UST can be used to beat the $ 1 equivalent of the MOON – which serves as a kind of shock absorber for UST volatility.

Massive selling pressure has led to drastic price declines in both LUNA and UST. Finally, LUNA’s market capitalization changed UST’s for the first time. When there was no more than 1 USD for every 1 USD in the UST, some traders feared that the whole system could become insolvent.

(CoinDesk Research, Luna Foundation Guard, Blockchair)

To support the UST price, Luna Foundation Guard (LFG) has accumulated over $ 2 billion in its Bitcoin (BTC) reserves.

Do Kwon, the founder of Luna, has started releasing BTC on the market in recent months in an attempt to support UST in case its peg ever needed support.

In its first (and perhaps last) test of this mechanism, LFG “borrowed” billions of dollars worth of reserve assets from professional market makers, draining almost all of LFG’s blockchain wallets.

Now, as LFG strives to replenish its reserves by attracting new investors, market makers are trying to actively defend the UST peg by deploying rescue capital on stock exchanges and liquidity funds.

(CoinDesk Research, TradingView)

While the rescue capital from the Terra reserves was modestly successful, with UST and LUNA prices rising sharply on Tuesday, the prices of both currencies were extremely volatile until the early hours of Wednesday morning.

At this point, all bets appear to be lost for a smooth UST recovery. Even though Do Kwon announced on Twitter that it is working on a plan to save the cryptocurrency, market confidence in the Terra project seems to be declining to a minimum.

The stark reality is that Terra (LUNA) – a $ 119 cryptocurrency on April 5, 2022 – fell below $ 1 in less than 3 days. Moreover, the UST fell below 30 cents for a short period of time, leading to a series of questions about whether the “stable” currency will ever be able to regain its stability.

(CoinDesk Research, Glassnode)

Much of the hundreds of millions of dollars in Bitcoin used to save the UST were probably sold directly on the market earlier this week. Withdrawals to non-BTC currencies would have been necessary for traders hoping to somehow defend the UST.

Charts with BTC net transfer volumes show massive increases in volume between May 9-10, when Terra reserves were first used. Although the Earth did not take all of these peaks into account, the release of billions of dollars in Terra’s reserves would certainly have had an impact.

Terra’s BTC reserves probably contributed even more to the selling pressure in an already tumultuous market. The impact of the UST on the crypto market is an important footnote in the midst of all this week’s chaos. It is a reminder of why stable currencies – which form the basis of decentralized financing – not only pose a risk to individual traders, but also a systemic risk to the entire crypto ecosystem if not managed responsibly.

That being said, it would not be surprising for regulators to knock on the door of Bitcoin and the crypto zone as a result of this unexpected event of the collapse of the cryptocurrency Terra (LUNA).

Article source: Coindesk

(i) Check the updated list of cryptocurrencies by market capitalization.