LUNA and UST: Is It The End?
Crypto is volatile at best… and there’s nothing more humbling than seeing a crypto crash make history right before our eyes.
If there’s ever a time to be reminded of how early we all still are: the last 48 hours have been it.
LUNA and UST have crashed to prices not seen before, in the historical crash of yet another algorithmically-backed stable coin (UST).
So…
How did it happen?
TerraUST is a “stablecoin” created by Terra Labs backed by… well, nothing.
And despite this, UST and LUNA coins were trading as top 10 cryptocurrencies for some time.
With crypto prices dipping since January, people have been keeping their crypto investments in stablecoins and protocols like Anchor to mitigate loss and keep their funds "safe".
Usually... this isn't such a bad strategy. Until it all goes wrong.
What does "algorithmically backed" mean?
Unlike other stablecoins such as Tether, which are traditionally backed by fiat money to maintain their “peg” (1$ = 1USDT), algorithmically backed stable coins are backed by… nothing. Other than market dynamics.
What does this mean?
It means that crashes like the one we witnessed over the last 48 hours are very possible, and likely to happen again for other algorithmically backed-stable coins.
“Death spirals” as they’re called, take place when faith in markets drops - and people start pulling their investments from protocols.
This causes the price to drop at an incredible rate - and the onset of that is as we’ve witnessed on socials and online:
People lose their investments. Savings. Even their homes…
The results are catastrophic.
With the Crypto Crash that took place over the weekend, LUNA fell over 50% in one day, and up to 98% total over the next few hours. UST de-pegged and reached lowest lows of 0.3$.
Can it be fixed?
Well, there are billions in the balance… and with the way people have been affected, there’s no doubt that faith in the protocol has been lost. It’s unlikely to ever be fully restored, but crypto is crypto and nothing can ever be certain.
There are a couple of ways this situation could pan out…
Which ways could this go?
- Death spiral: confidence is lost, people continue to drain their funds and the coins essentially die
- TerraLabs use BTC reserves to get back up to peg to try and save it, will then need to win over the community
With the founder releasing only a couple of tweets on the issue… it’s unclear which way this will go.
A brief statement was made by LUNA founder Do Kwon expressing his thoughts. Check it out here.
For now, the situation is uncertain.
The only thing we can recommend to you is to invest only what you are prepared to lose, and to do your own research.
Stay safe out there... things are getting bearish!
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