Bearish Terra (LUNA); The Lost Fortune!
With the current bearish price of Terra (Luna), we're all left surprised and perhaps even depressed after losing a whole lot of investments on the Terra coins. The Founder Do Kwon had something of a reputation on Twitter for arrogance, in some circles, so some think it may have been a personal attack as well. One theory was put forward by the founder of Cardano Charles Hoskinson, although he later deleted the tweet.
He tweeted that a large institution borrowed 100,000 Bitcoin from Gemini exchange. They then exchanged a large amount of that BTC for UST over the counter (OTC) with Do Kwon at a discount. He agreed, lowering the UST liquidity.That institution then allegedly dumped large amounts of both BTC and UST on the market causing a liquidation cascade of leveraged longs, slippage and panic selling by investors, many of which sold their LUNA holdings and unstaked their UST to sell it.
Many crypto investors could not resist the high returns offered by Luna and UST, which had almost $15 billion in total locked value at one time. Unfortunately, many people who had locked their UST have suffered massive losses, with some losing their entire life savings in the latest crash.
LUNA did pump over 100x from the lows of $0.00000112 . The LUNA price a week after the crash was $0.00018.It may be impossible unless a large part of the hyper inflated circulating supply of LUNA ( about 6.5 trillion LUNA coins) is burnt – the LUNA market cap would flip Bitcoin (with its $578 billion market capitalization) before the LUNA price even reached nine cents ($0.09).
After a significant amount of UST left the network, Terra stakeholders had to mint a lot of Luna to replace the UST, but they could not keep up with the large amounts of UST leaving the network. Hence, the death spiral continued up to the current dire situation.However, the company explained that it was doing this to attract investors and that the rate would fall over time.Luna and UST’s massive implosion is not unique. Many other algorithmic stablecoins have failed, with the most famous being the titan token that lost investors over $2 billion in June 2021, including Mark Cuban.
The idea to create an ‘algorithmic stablecoin’ where LUNA could be burnt in order to ‘mint’ UST to stabilize it whenever it loses its 1:1 peg to the dollar, and vice versa, is different to how other stable coins like Tether (USDT) and USD Coin (USDC) function. For example if UST hit 0.99, a small amount of LUNA would be burnt, and if it hit 1.01, a small amount of UST would be burnt.It worked, until it didn’t.Investors can burn UST tokens to reduce their supply and create more Luna to maintain their USD. However, the latest death spiral was triggered by an $85 million UST transfer from the Terra blockchain to the Ethereum blockchain via the Wormhole bridge.
The reasons for the LUNA crash are deeper though, and are a warning on crypto price volatility. Some investors are also looking to buy the dip on Bitcoin and buy Terra (LUNA) at these low price points.The LUNA market cap would reach its former $40 billion at a LUNA price of just over half of one cent ($0.006). That’s calculated by multiplying the LUNA crypto token price by the supply in circulation.
It seems like this is the end of the road for UST and Luna since there is little chance that the two tokens shall recover if history is anything to go by. Investors should learn a lesson from this debacle and steer away from algorithmic stable coins.
🛑DISCLAIMER: I am not a financial advisor nor certified analyst. All contents discussed on this blogpost are solely my own personal views and for education/entertainment purposes only . Do your own research and due diligence.