A deep dive into the #terra #luna #ust collapse
With a TLDR summary in the thread below:
calebandbrown.com/blog/a-week-of…
With a TLDR summary in the thread below:
calebandbrown.com/blog/a-week-of…
Take it back a few weeks and Terra was a top 10 Cryptocurrency by market cap. With its dollar-pegged algorithmic stablecoin UST a market leader for its sector.
Terra = Smart contract Platform
Luna = Native/Governance token
UST = Stablecoin which allows $1 UST to be redeemed for $1 worth of LUNA anytime
Luna = Native/Governance token
UST = Stablecoin which allows $1 UST to be redeemed for $1 worth of LUNA anytime
In theory, the arbitrage opportunities on UST loosing its peg would incentivise the market to continuously reestablish its peg. However, if LUNA and UST are both falling in price this poses a significant risk.
Users can (and did) redeem UST for $1 LUNA, immediately sell and in turn add immense sell pressure to LUNA. On May 9th this unfolded to extreme levels
On May 8th #Binance experienced a slight depeg of UST after some major institutions sold. Then came an influx of UST supply on Binance. Traders were selling UST and liquidity providers were pulling at risk capital in the form of other stable coins
Demand for UST was dropping. May 9th this trend accelerated. Massive selling of UST on-chain and major UST amounts withdrawn from Anchor protocol and sold
In comes the bank run. Users who previously were making 20% on their UST rewards withdrew their coins at mass. Immense sell pressure and fear. Market participants took advantage of the arbitrage. This caused LUNA hyperinflation
LUNA supply hit a 1,908,651.08% gain in a week. Almost all new supply was sold at market, causing LUNA to effectively lose 100% of its value
On May 16 the Luna Foundation Guard #LFG announced their reserves which have been nearly entirely depleted. 80,394 BTC to 313 BTC in just over a week
Future? Appears to be bleak. This will be remembered as one of the most significant events in Crypto history. Such a fall from the top 10 marketcap rankings I have not seen myself since Bitconnect (a scam) in 2017. Be wary and #DYOR. Full article linked for a detailed explanation
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