Hi Traders
Ev here. Been trading crypto since 2017 and later got into stocks. I have 3 board exams on financial markets and studied economics from a top tier university for a year.
A quick overview of LUNA - What happened and what's next? Please note that I will be quoting from Blockworks.
In a nutshell...
Terra USD (UST) has been trading well below its dollar peg since Saturday due to volatility, this has resulted in a loss of billions. The formerly-stable coin slid to just under 70 cents at one point in the past 48 hours. This prolonged de-peg has led to mass withdrawals from the preeminent Terra blockchain dApp Anchor, which has seen its deposits plunge by some $7.8 billion.
The net UST supply contraction amounts to roughly $1 billion already. As each UST is redeemed for $1 worth of LUNA, the latter’s supply expands. Since the trouble began May 7, around 25 million LUNA have been minted by the protocol. The increased supply has decimated the price of Terra’s native asset LUNA, which has fallen by 64% over the past week, according to data compiled by Blockworks.
Unlike the weekend price action, which was centered on UST trading via centralized exchanges and the Ethereum dex Curve, the extreme volatility this time knocked UST off peg on the Terra chain itself. The speed overwhelmed the intended arbitrage-based stabilization mechanism built into the protocol design, which has a roughly $290 million per day soft cap for redemptions at $1.
Exceed the cap, and the amount of LUNA that one UST can be redeemed for — is designed to widen. The concept is supposed to prevent manipulation but it also makes it a slow slog to recover from such a strong shock.
Algorithmic stablecoins remain highly experimental and have failed spectacularly before. Most recently, the Waves-based stablecoin USDN collapsed to 77 cents in early April and has never fully recovered. It used a roughly similar burn and mint stabilization mechanism to UST’s, and the platform’s WAVES token has fallen by 80% since.
_______________________________
Could this be the end of the road for Terra and Luna?
Share your thoughts 👀
Ev
Ev here. Been trading crypto since 2017 and later got into stocks. I have 3 board exams on financial markets and studied economics from a top tier university for a year.
A quick overview of LUNA - What happened and what's next? Please note that I will be quoting from Blockworks.
In a nutshell...
Terra USD (UST) has been trading well below its dollar peg since Saturday due to volatility, this has resulted in a loss of billions. The formerly-stable coin slid to just under 70 cents at one point in the past 48 hours. This prolonged de-peg has led to mass withdrawals from the preeminent Terra blockchain dApp Anchor, which has seen its deposits plunge by some $7.8 billion.
The net UST supply contraction amounts to roughly $1 billion already. As each UST is redeemed for $1 worth of LUNA, the latter’s supply expands. Since the trouble began May 7, around 25 million LUNA have been minted by the protocol. The increased supply has decimated the price of Terra’s native asset LUNA, which has fallen by 64% over the past week, according to data compiled by Blockworks.
Unlike the weekend price action, which was centered on UST trading via centralized exchanges and the Ethereum dex Curve, the extreme volatility this time knocked UST off peg on the Terra chain itself. The speed overwhelmed the intended arbitrage-based stabilization mechanism built into the protocol design, which has a roughly $290 million per day soft cap for redemptions at $1.
Exceed the cap, and the amount of LUNA that one UST can be redeemed for — is designed to widen. The concept is supposed to prevent manipulation but it also makes it a slow slog to recover from such a strong shock.
Algorithmic stablecoins remain highly experimental and have failed spectacularly before. Most recently, the Waves-based stablecoin USDN collapsed to 77 cents in early April and has never fully recovered. It used a roughly similar burn and mint stabilization mechanism to UST’s, and the platform’s WAVES token has fallen by 80% since.
_______________________________
Could this be the end of the road for Terra and Luna?
Share your thoughts 👀
Ev
