Terror (Terra) of the Lunatics $Luna
Terror (Terra) of the Lunatics $Luna
The Stablecoin that de-pegged
Hey Guys,
This is Web3 Digest Premium.
What a day for Bitcoin and the Luna Foundations. Bitcoin was down 5% today but for $LUNA it looked like this.
Down 93.49% today.
UST, a so-called stablecoin that’s meant to maintain a $1 peg, plunged to as low as 26 cents Wednesday. This is not supposed to happen if you are a “Stablecoin”. Bitcoin volatility means things aren’t so stable these days.
Bitcoin is down 18% in the past 5 days and looks poised to plunge even more.
The trials and tribulations of “Web3” seems never-ending from NFT madness in gas fees to this.
Sister token luna has lost roughly 96% of its value in the past seven days
Terra creator Do Kwon announced a last-ditch effort to return UST to its $1 peg.
How are you even supposed to justify these kinds of loses and this amount of “volatility”.
The Luna Foundation Guard has been reaching out to large crypto investors in the hope of raising over $1 billion to shore up the embattled UST stablecoin, according to three sources with knowledge of the process.
The algorithmic stablecoin had dropped as low as $0.61 on Monday. Wednesday’s carnage was way worse.
A number of market sources are also saying the huge selloff is occurring right now in tandem with the depegging of algorithmic stablecoin TerraUSD (UST) over the past several days. Even the crypto media is not saying much about it, which is a bit hilarious.
Web3 Hype Turns into a Bursting Bubble
How to you justify the carnage? Coinbase stock was down another 26% today. If they went bankrupt you could lose your crypto holdings with them.
Solana has lost nearly half of its value in the past week, down well over 30% at one point today.
That the entire value chain is tethered to Bitcoin’s pricy is already super shady.
Glassnode analyst says change in exchange balance is due to LFG using bitcoin reserves to defend stablecoin peg. Who even knows?
Do Kwon, "King Of The Lunatics", has some explaining to do. But Terra and Solana were always stories of 2021 that were too good to be true. Ethereum hasn’t even launched 2.0 yet, it’s scalability issues holds back all of Web3.
TerraUSD is an algorithmic stablecoin whose value is fixed to $1. Unlike traditional stablecoins that are backed up by fiat currency and hard assets — including government bonds or even gold — UST, as it's known, has its value set by a computer algorithm. Maybe that wasn’t such a great idea?
The Not so Stable Stablecoins - To the Moon? Of the Underworld
TerraUSD, or UST, plunged to as low as 26 cents. The so-called stablecoin is meant to maintain a 1-to-1 peg with the U.S. dollar. It was last trading at around 68 cents, according to Coin Metrics data. Trust has evaporated in its ability to be a stablecoin and crypto investors have been burnt beyond belief today and this week.
Terraform Labs (TFL) — the organization behind UST, cryptocurrency LUNA, and Luna Foundation Guard (LFG) — emptied its treasury wallet of all of its bitcoin, about 42,530 bitcoin, or $1.3 billion, on May 9th. All of which is likely pushing down Bitcoin’s price even more which is already in free-fall with the NASDAQ 100 correction we are seeing in the markets.
Stablecoins are akin to bank accounts for the crypto economy, offering a sound store of value to avoid the kind of volatility cryptocurrencies like bitcoin have become notorious for — in theory, at least.
It’s just incredible. From NFT over-hype to days like we saw today, it’s hard to trust the decentralized system.
The truth is we haven’t even seen Bitcoin and Tesla volatility hit second gear yet. Meanwhile the crypto bubble is entirely breaking down.
UST is what’s known as an “algorithmic” stablecoin. It uses a complex system of minting and burning tokens (not like I understand it) to adjust supply and stabilize prices. UST’s price has crumbled under the pressure of a sell-off in cryptocurrencies recently, resulting in further panic in the market.
Panic yes? But how do you trust new shiny cryptocurrencies when they mess up to this degree.
How do you do your due diligence on hype not tethered to anything real? It’s a bit like speculative gambling at that point. Its creator Do Kwon believes bitcoin can become the “reserve currency” of the Terra ecosystem. At least before today.
Algorithmic Failure of Crypto Burning
When UST falls below $1, traders can "burn" coins, which removes them from circulation, in exchange for $1 of luna, the network's sister token.
This restricts UST's supply, which then raises its value again. If UST rises above $1, traders then sell luna to convert into UST, which pushes its price down.
Over the weekend, hefty selling of UST forced its value below $1, exacerbating the downdraft and prompting developer group Luna Foundation Group (LFG) to step in and pledge to shore up the stablecoin.
The volatility of Bitcoin breaks things, and by this I mean also the Web3 enthusiasts and their speculation on this entirely new asset class, full of ponzi scheme tokenomics.
Terraform Labs, which is led by its founder, Do Kwon, announced earlier this year that it planned to obtain $10 billion in bitcoin for reserves to “open a new monetary era of the Bitcoin standard.”
Coinbase itself has a stock that’s down 78% YTD, if I cannot even trust the crypto banks, whom can I trust? Like serioulsy.
I have personally warned about this business model before.
“During periods of high volatility and one-sided buy/sell activity for UST, the above stabilizer may not be sufficient to maintain the peg in the short-term.”
There have been multiple instances where UST has decoupled from its $1 peg, raising concerns about the viability of its economic model — particularly in a situation when several people try to redeem their tokens at once.
Thanks for reading! Hopefully you didn’t get caught in this.