"Terra could have grown to be 10 times as large" before such a crash, he said to CNET. "That's literally in the original threat model that anyone in crypto builds: How would this hold up if a guy with $100 billion came in and tried to take this down?"įour years ago, while working as a DeFi analyst at Scalar Capital, Younessi called Terra's model "broken". "Our job as DeFi builders is to build systems that are resistant ," he said. Younessi is unsure whether the depeg was caused by a coordinated attack or not, but said that the responsibility is on crypto developers to create more secure systems. Once investors saw that UST lost its peg, they would then rush to unstake and sell their UST, which would require more bitcoin reserves to be sold, adding further sell pressure.Īgain, this is still speculation. If would-be attackers created a large position in UST and then unstaked $2 billion at once, it could depeg UST, which would mean terra's team would have to sell portions of its bitcoin reserve to repeg the stablecoin. Some have speculated that an attacker attempted to break UST in order to profit from shorting bitcoin - that is, betting on its price going down. On the possibility of this being a malicious attack. The value of luna tokens has almost completely disappeared: After reaching a high of just under $120 in April, luna's current price is less than a fiftieth of a penny. Stablecoin, backed by a costco hotdog and pepsi /dDLgnKMAZa- cooter, oracle of goblin town May 12, 2022 Its market cap, which was around $18 billion in early May, now stands at $770 million.
It bounced between 30 cents and 50 cents in the week following the initial depeg, but has now fallen to a steady low of under 20 cents. Investors, already flighty in the current gloomy market, flocked to sell their UST once the stablecoin couldn't retain its peg. Only $100 million worth of UST can be burned for luna per day. Traders tried to take advantage of arbitrage, exchanging 90 cents worth of UST for $1 worth of luna, but then a speed bump appeared. Such huge sells pushed the price down to 91 cents. Whether this was a reaction to a volatile period - the rise in interest rates has particularly affected cryptocurrency prices - or a more malicious attack on Terra's system is a topic of debate. Over $2 billion worth of UST was unstaked (taken out of the Anchor Protocol), and hundreds of millions of that was immediately sold.
But UST, at the time of writing, is worth 7 cents. If UST goes above $1, creators would sell UST until it goes back to $1, with the profit being used to buy more bitcoin to pad out the reserves. If UST dipped below $1, bitcoin reserves would be sold and UST bought with the proceeds. The LFG had about $2.3 billion in bitcoin reserves, with plans to expand that to $10 billion worth of bitcoin and other crypto assets. Terraform Labs founder and CEO Do Kwon created the Luna Foundation Guard, a consortium whose job it is to protect the peg. The effect works in two ways: People buying UST drives the price up, and UST being burned during its exchange to luna deflates the supply. So if UST slipped to 99 cents, traders could profit by buying a huge amount of UST and exchanging it for luna, profiting 1 cent per token. Here's the key to UST retaining its peg: 1 UST could always be exchanged for $1 worth of luna. Before the depegging, over 70% of UST's circulating supply, around $14 billion, was deposited in this scheme.
Instead of parking your savings at a bank for a 0.06% interest rate, the pitch is to turn put your money into UST, where it can earn nearly 20% in interest. To entice traders to burn luna to create UST, creators offered an insane 19.5% yield on staking - which is essentially crypto terminology for earning 19.5% interest on a loan - through what they called the Anchor Protocol. "If you could take those assets, extract stability out of them and productize it, then that's huge," Younessi said. The selling point of bitcoin and ether is that they're difficult for bureaucrats, politicians and central bankers to control, but their downside is price volatility. "A decentralized stablecoin is the Holy Grail of DeFi," said Cyrus Younessi, former head of risk management at MakerDAO, the group behind DAI stablecoin.
#LUNAR CRUSH PLUS#
(Tether's US reserves have come under scrutiny in the past, with there being some conjecture over how many dollars it actually holds - but it's US dollar backed in principal.) For Terraform Labs, the idea was that through a few clever mechanisms, plus billions in bitcoin reserves, the UST's dollar peg could be maintained without it having to be backed by the dollar. The UST coin, created by Terraform Labs, is different from tether and USDC in a key way - it's not backed by actual US dollars, but rather is what's known as an algorithmic or decentralized stablecoin.
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