Zero-bound LUNA coins can’t revive UST stablecoins, so Terra bets home on a new fork

Terra (LUNA), a public blockchain protocol that powers a large number of unsecured stablecoins, is the first cryptocurrency to be used.Lehman“The moment a whale-sized volatility quake and the corresponding transmission from TerraUSD (UST) lost a $ 1 peg, spread to almost every corner of the market, hit Bitcoin, and Tether temporarily lost the peg. ..

Before delving into the details of this crisis, let’s take a look at a brief review course. Terra maintained the $ 1 peg for UST by algorithmically adjusting the supply of UST and LUNA. If the price of UST fell below $ 1, the supply of UST was burned by casting $ 1 worth of LUNA, resulting in swap fees paid in LUNA coins. This reduced the supply of UST and allowed the pegs to be restored. On the other hand, if the price of UST exceeds $ 1, LUNA will be burned to mint $ 1 worth of UST, and a swap fee paid by UST will be required, which will increase the supply of stablecoin and raise the price. It goes down. These swap fees played an important role in raising staking rewards. In addition, the swap fee tolerance determined the amount of LUNA / UST that could be burned or cast at a particular time. Check out this Twitter thread for more information on this topic.

Crypto’s “Lehman” moment reveals Terra’s UST, Pumpels Bitcoin and rocks Tether

Let’s find out what went wrong so that this primer doesn’t get in the way. Terra’s algorithmic approach to Stablecoin worked relatively well during periods of low volatility. But in the face of rising volatility, it failed altogether. The crisis began with a $ 85 million exchange between UST and USD Coin (USDC), as described in the thread below.

From that point on, Terra’s LUNA coin slowly fell into a spiral of death. About a week ago, the price of LUNA was around $ 73. At that point, if you redeem / burn 1 UST, you will earn 0.059 LUNA coins (equivalent to $ 1). However, the price of LUNA plummeted to $ 0.1 on May 12, so burning one UST will give you 10 LUNA coins. This dynamics shows how the supply of LUNA coins has increased dramatically over the past week, resulting in a spiral of hyperinflated death. Towards the beginning of this crisis, LUNA’s supply was 386 million coins. At the time of writing this, the supply is hovering at: 6.53 trillion coins!!

Of course, in the early stages of the crisis, Terra’s LFG council lent out the value of Bitcoin. $ 750 million To OTC traders trying to restore the pegs. However, this attempt also failed. Conversely, this measure has brought additional volatility to the Bitcoin ecosystem, with prices below Thursday’s December 2020 lows. The volatility quake also temporarily lifted the tether pegs.

Crypto Carnage Pumpels Terra’s LUNA coin as UST Stablecoin loses pegs and Bitcoin-based intervention cannot restore stability

So what happens next? Tether’s Dokwon is now Terra Ecosystem Reconstruction Plan:

  • Reset network ownership to 1 billion tokens
  • Of this new supply, 400 million tokens will be given to previous owners of LUNA coins
  • An additional 400 million tokens will be awarded to UST holders on a proportional distribution basis
  • The remaining 200 million tokens will be split between the community pool and those who tried to save LUNA at the end of the crisis.

Of course, many believe that the Terra brand is now too hurt for a healthy resurgence.

Currently, Terra’s UST is trading at a price level of about $ 0.20, well below the $ 1 peg.

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And LUNA is trading at $ 0.0004631. This is a price level reminiscent of meme coins such as Shiba Inu.

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Finally, the crisis is now having a significant impact on the entire world of Stablecoin, and regulatory hammers are much more likely to decline in the coming days.

Do you think the dropout from Terra’s grace will have a lasting impact on cryptocurrencies as a whole? Please let us know your thoughts in the comments section below. Zero-bound LUNA coins can’t revive UST stablecoins, so Terra bets home on a new fork

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