The cryptocurrency's third-largest stablecoin, TerraUSD (UST), fell below $1 on Monday and fell to a low of 32 cents at one point, causing a large number of investors to sell their holdings. As of press time, the price of UST was as low as 32 cents. It fell more than 67% by two days and is now in a state of severe decoupling.
USTUSD quotes from TradingView
This is not the first time that stablecoins have become unstable. I remember that there was a small-level crash in USDT in 2018. At that time, I even copied the bottom with my friends. At that time, I thought that there would be a repair after the panic. This time UST, from the price point of view, someone started to buy the bottom, but I did not act. The main reasons are:
1. Unlike 2018, UST has many strong stablecoin competitors, and robust traders may not return. In 2018, USDT, as the only stable currency on the market, did not have many choices in the long bear market. Instead of being eaten away by the bear market, it is better to return to maintain the market value.
2. USDT is relatively traditional, and does not use algorithms to stabilize it. It is completely dependent on TEDA executives to beat their heads. However, according to the rules of the game, TEDA executives must maintain their best interests and prepare a set of fooling arguments. Don't underestimate the game of human heart, this thing may be more stable than the algorithm. "Code is Law" and decentralization are just flickering retail investors with plots to enter the market to pay the bill. After understanding a lot of technical essence, you will find that this decentralized world is either the emperor's new clothes or the rhetoric of killing pigs. Very shabby. It is Satoshi Nakamoto's game thinking that makes POW the backbone of the crypto market. What BM, and the rhetoric about changing the world, the various rhetoric of the Chinese projects of web3.0 are just on the one hand retail investors who are waiting to feed, and on the other hand "bring a soft condom" for the project party's sharp sickle to prevent scaring away Retailers. Although it may not be easy to accept, this is also the reality, whether it is accepted or not is there. The sooner you realize the essence of this market, the sooner you can escape the sharp edges of a few sickles.
Let's go back to the mechanics of UST, let's see how this tragedy happened.
UST is an algorithmic stablecoin that maintains a peg to the US dollar through an on-chain minting and destruction mechanism. That is, in theory, these systems should ensure that traders can exchange $1 worth of UST for $1 worth of LUNA, which has a floating price and is designed to act as a kind of "shock absorber" for UST price fluctuations. However, due to the recent interest rate hike by the Federal Reserve, the cryptocurrency market continued to fluctuate, and the price of LUNA currency fell.
LUNAUSD quotes from TradingView
In fact, from the historical point of view, algorithmic stablecoins are not as stable as traditional stablecoins. Even after TEDA surreptitiously revises the rules and removes the clause that USDT is pegged to the US dollar, it is still stable (the decoupling of USDT in 2018 was before the rules were revised). In addition to this time, stablecoins such as UST have also experienced a 15% decoupling last year. Whether this thing is reliable or not can be seen.
The main reason for the UST bloody case is the loophole in its algorithm mechanism, which is exploited by speculators, chooses a God-given opportunity, pushes it lightly, and it collapses! The UST mechanism is too greedy. The anchor protocol in the Terra ecosystem of UST and LUNA is not only a stable currency, but also the pursuit of high returns (there is an old Chinese saying that it is necessary to establish an archway), and it has really been realized. , but at the expense of risk exposure. In the days of singing and dancing, no one would pay attention to this detail. However, when disaster strikes, the loopholes are exposed, and the time has come. Powerful traders can participate in the UST pledge redemption on LUNA through the anchor protocol, and then exchange UST for other stable coins can become a rich arbitrage behavior, and they can get it. Up to 600% of the income. It is this crazy mechanism design. When the market is bad, a large number of UST are sold, causing UST to be delinked from the US dollar. However, according to its algorithm mechanism, more LUNA will be minted on the chain to maintain the peg between UST and the US dollar. When the gap cannot be filled, the silly algorithm will continue to issue LUNA. A large amount of LUNA has flowed into the market. The Fed's interest rate hike has caused the global risk market to fall continuously. When LUNA itself fell, there were still a large influx of newly issued LUNA, which made the situation worse. At this time, traders who poured into the Terra ecosystem with a large number of early arbitrage panic, and no one wanted their assets to shrink, so they started the "faster than hand" market in A-shares. It is equivalent to the "nuclear button" of A shares, except that the encryption did not fall by the limit, and all the way down, panic spread, and LUNA started this session. At this time, everyone knew that LUNA and UST were one family. How could UST survive if LUNA died? Some people began to sell UST in large quantities again. It doesn’t matter. The algorithm on the chain is not the Securities Regulatory Commission or the Federal Reserve. It will only try to stupidly and violently issue LUNA. So far, an avalanche of constant positive feedback has begun, and this is the vacancy and vacancy filled by the believers of "Code is Law" with real money! Seeing Terra's murder, you have to admire the wisdom and pattern of Satoshi Nakamoto. The core of the PoW mechanism is game theory and a thorough understanding of human nature. Later mainstream and copycats either learned the shape and only copied and pasted the essence of Satoshi Nakamoto's thought, or some people were too greedy and not satisfied with the inefficient mechanism of PoW (inefficiency is to ensure the realization of competition and reliability), Switch to PoS. Throughout human history, where there is PoS, there must be corruption! From this point of view, V is not God, and it is enough to downgrade ETH to PoS to see that its cognitive level is comparable to that of BM, but it is more pedantic!
This is not the first time that stablecoins have become unstable. I remember that there was a small-level crash in USDT in 2018. At that time, I even copied the bottom with my friends. At that time, I thought that there would be a repair after the panic. This time UST, from the price point of view, someone started to buy the bottom, but I did not act. The main reasons are:
1. Unlike 2018, UST has many strong stablecoin competitors, and robust traders may not return. In 2018, USDT, as the only stable currency on the market, did not have many choices in the long bear market. Instead of being eaten away by the bear market, it is better to return to maintain the market value.
2. USDT is relatively traditional, and does not use algorithms to stabilize it. It is completely dependent on TEDA executives to beat their heads. However, according to the rules of the game, TEDA executives must maintain their best interests and prepare a set of fooling arguments. Don't underestimate the game of human heart, this thing may be more stable than the algorithm. "Code is Law" and decentralization are just flickering retail investors with plots to enter the market to pay the bill. After understanding a lot of technical essence, you will find that this decentralized world is either the emperor's new clothes or the rhetoric of killing pigs. Very shabby. It is Satoshi Nakamoto's game thinking that makes POW the backbone of the crypto market. What BM, and the rhetoric about changing the world, the various rhetoric of the Chinese projects of web3.0 are just on the one hand retail investors who are waiting to feed, and on the other hand "bring a soft condom" for the project party's sharp sickle to prevent scaring away Retailers. Although it may not be easy to accept, this is also the reality, whether it is accepted or not is there. The sooner you realize the essence of this market, the sooner you can escape the sharp edges of a few sickles.
Let's go back to the mechanics of UST, let's see how this tragedy happened.
UST is an algorithmic stablecoin that maintains a peg to the US dollar through an on-chain minting and destruction mechanism. That is, in theory, these systems should ensure that traders can exchange $1 worth of UST for $1 worth of LUNA, which has a floating price and is designed to act as a kind of "shock absorber" for UST price fluctuations. However, due to the recent interest rate hike by the Federal Reserve, the cryptocurrency market continued to fluctuate, and the price of LUNA currency fell.
In fact, from the historical point of view, algorithmic stablecoins are not as stable as traditional stablecoins. Even after TEDA surreptitiously revises the rules and removes the clause that USDT is pegged to the US dollar, it is still stable (the decoupling of USDT in 2018 was before the rules were revised). In addition to this time, stablecoins such as UST have also experienced a 15% decoupling last year. Whether this thing is reliable or not can be seen.
The main reason for the UST bloody case is the loophole in its algorithm mechanism, which is exploited by speculators, chooses a God-given opportunity, pushes it lightly, and it collapses! The UST mechanism is too greedy. The anchor protocol in the Terra ecosystem of UST and LUNA is not only a stable currency, but also the pursuit of high returns (there is an old Chinese saying that it is necessary to establish an archway), and it has really been realized. , but at the expense of risk exposure. In the days of singing and dancing, no one would pay attention to this detail. However, when disaster strikes, the loopholes are exposed, and the time has come. Powerful traders can participate in the UST pledge redemption on LUNA through the anchor protocol, and then exchange UST for other stable coins can become a rich arbitrage behavior, and they can get it. Up to 600% of the income. It is this crazy mechanism design. When the market is bad, a large number of UST are sold, causing UST to be delinked from the US dollar. However, according to its algorithm mechanism, more LUNA will be minted on the chain to maintain the peg between UST and the US dollar. When the gap cannot be filled, the silly algorithm will continue to issue LUNA. A large amount of LUNA has flowed into the market. The Fed's interest rate hike has caused the global risk market to fall continuously. When LUNA itself fell, there were still a large influx of newly issued LUNA, which made the situation worse. At this time, traders who poured into the Terra ecosystem with a large number of early arbitrage panic, and no one wanted their assets to shrink, so they started the "faster than hand" market in A-shares. It is equivalent to the "nuclear button" of A shares, except that the encryption did not fall by the limit, and all the way down, panic spread, and LUNA started this session. At this time, everyone knew that LUNA and UST were one family. How could UST survive if LUNA died? Some people began to sell UST in large quantities again. It doesn’t matter. The algorithm on the chain is not the Securities Regulatory Commission or the Federal Reserve. It will only try to stupidly and violently issue LUNA. So far, an avalanche of constant positive feedback has begun, and this is the vacancy and vacancy filled by the believers of "Code is Law" with real money! Seeing Terra's murder, you have to admire the wisdom and pattern of Satoshi Nakamoto. The core of the PoW mechanism is game theory and a thorough understanding of human nature. Later mainstream and copycats either learned the shape and only copied and pasted the essence of Satoshi Nakamoto's thought, or some people were too greedy and not satisfied with the inefficient mechanism of PoW (inefficiency is to ensure the realization of competition and reliability), Switch to PoS. Throughout human history, where there is PoS, there must be corruption! From this point of view, V is not God, and it is enough to downgrade ETH to PoS to see that its cognitive level is comparable to that of BM, but it is more pedantic!
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