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It is a very powerful and very brutal expiry that the cryptocurrency market has been inviting us to follow for the last three days. Along with Bitcoin and Ethereum dropping more than 20% each, the impossible happened to stablecoin TerraUSD (UST), dropping from its dollar track on Monday night.
As a consequence of this unprecedented episode, the price of Luna, one of the top 10 cryptocurrencies in the world, fell from $80 at the beginning of the month to less than $0.18 this morning (05/12/22 at 11:45 ). The losses are almost total for investors who have bought the cryptocurrency in recent months. Posted in the 63rd position of the cryptocurrencies in terms of capitalization, Luna is dangerously close to zero dollars. One of the biggest cryptocurrency crashes to date.
Last night, a final bounce took place, creating an increase of more than 400% of the price of Luna. But this did not last long and the unsubstantiated speculation soon died out. The Luna foundation, behind the Terra blockchain and its various tokens, had sent a bottle overboard asking investors to help it recapitalize its tokens. A lifesaver that was not enough. The height of the unthinkable: the UST stablecoin now costs more than the Luna token.
Why such a drop?
To understand Luna’s fall, we must understand that of the UST. As we pointed out in an article published on Tuesday about its fall, it is an algorithmic stablecoin, which does not depend on a reserve of the fiduciary currency on which it follows its course, placed in a bank. TerraUSD is based on an arbitration mechanism, the operation of which is based on the Luna cryptocurrency (from the same Terra blockchain). In a nutshell: when the price of a UST falls below a dollar, the exchange mechanism burns a UST against a Luna dollar.
Consequently, the price of Luna fell into bearish pressure and the sudden arrival of extraordinary volume turned the mechanism. The cryptocurrency entered a spiral where investors withdrew en masse (we are talking about 40 billion dollars evaporated) and where the price continued to fall without any support or psychological threshold. Opposite, investors are also withdrawing from the UST, which had lost what characterized it: the stability of its course.
What caused the accident will be a big problem. We’ll try to get back to this. lemon squeezer in the shortest possible time. But one thing is certain: faced with the indebtedness of thousands of people around the world, some have surely become rich to the tune of billions. Do Kwon, the developer behind the Terra blockchain (who claimed to want to “kill” competing stablecoins like DAI) may be under investigation.
Consequences in France
In recent months, UST has risen in the ranking of the most popular stablecoins and was ranked third until this week. Its success is due in particular to staking platforms, including Anchor (52% of UST reserves), based on the Terra blockchain. With it, investors could deposit a sum of their stable coins in an investment at 19.5% interest. Enough to promise risk-free passive income… as long as the stablecoin doesn’t lose its value.
In France, the French investment service JustMining published a message on Twitter yesterday to give the alert. For your clients who would have opted to go through your loan offer to receive income in your stablecoins, it will be necessary to act quickly because 40% of the product has UST exposure.
The failure of the UST stablecoin has serious repercussions on our loan product.
We invite our customers to carefully read this article: https://t.co/r7MdBhirud
We will respond quickly with new information.
“For example, with a UST at $0.52 (11.05.22 at 4:30 p.m.) and an exposure of 39.58% of the placement, a client in these conditions will validate a loss of 18.98% of his position”explained the company, which has developed its loan service using several specialized platforms, including… Anchor. “No matter which stablecoin you invest in on our platform, your capital is divided into different stablecoins”including UST.
There is no reason to expect a return to normal in the prices of the two Terra digital assets. The only hopeful possibility would be that the Luna foundation, the origin of the tokens, finds several billion dollars from investors to recapitalize their tokens. But investor confidence is certainly lost. And no financial analysis can go against that.