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Is TerraUSD (UST) Dead?

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Is TerraUSD (UST) Dead?

Terra is a blockchain protocol on the Cosmos network that hopes to specialize in stablecoin transactions. For several years it relied on others’ stablecoins to power the protocol. However, in 2020 they released TerraUSD (UST). This stablecoin was supposed to change the way the tokens are used. However, in May 2022 the system fell apart seemingly overnight. After the destabilization of the stablecoin, many are wondering what the future holds for UST. Is the project dead, or is there room for a recovery?

Why Is TerraUSD (UST) Down?

TerraUSD is a stablecoin that is supposed to always be worth $1.00. However, most stablecoins are directly pegged to the USD or other fiat currency. UST is not pegged to a fiat currency, but is rather backed by LUNA, Terra’s native currency. To keep the price stable, the developers of UST deployed an algorithm that would burn or mint UST and LUNA to stablize the price of UST. For example, if the price of UST dropped below $1.00, then LUNA would be minted and UST burned. This would increase the amount of LUNA backing per UST, thus raising the price of UST.

This is exactly what happened in the case of UST. A couple large withdrawals of UST lowered the price slightly below $1.00. Others saw this and began to sell, thinking that there was a risk of a further drop. As more people began to sell, LUNA was getting minted and UST burned at extremely high rates. To make matters worse, the Terra developers included a clause in the code that limited the amount of UST that could be burned each day. Once this limit was reached, there was nothing left for the algorithm to use to keep the price stable. This caused the price of the token to freefall, going from $1.00 to under $0.30 in a matter of days.

A couple days after the initial crash, Terra began searching for ways to bring the price back up to $1.00. Some of the plans included increasing the LUNA supply to increase backing for UST, as well as pegging the currency to different stablecoins. However, none of these plans worked. 

At the same time, the price of LUNA fell from $80 to $0.0001 in less than a week. This was due to a massive selloff and inflated supply. This sudden change in price left Terra vulnerable to governance attacks on the blockchain. Essentially, a group could control more than 50% of the chain for a comparatively small price. Because of this risk, Terra decided to completely shut down their protocol. 

Binance CEO Changpeng Zhao said that he was “very disappointed with how this UST/LUNA situation was handled.”

TerraUSD (UST) Price Movements

Since the launch of UST in late 2020, the price has remained extremely close to $1.00. It veered a bit away from time to time, but it was overall a very consistent asset that held real use cases. Because of this past stability, the extreme fall in price was a bit surprising. A few large, yet fairly ordinary, transactions sent the token in a downward spiral. It almost seems like this could have happened at any time. 

After the price began to fall the night of May 9th, you can see the algorithm begin to work as the price picks back up. However, the early morning of May 11th saw the price begin to fall extremely fast. This is presumably when the algorithm has reached its limits and was left with no other options than to just watch the price bottom out. On May 12th, the protocol was shut down and the price began to stabilize at around $0.15. 

Cryptocurrency Market Cycle

One way the cryptocurrency market can be measured is by comparing Bitcoin to other tokens. If altcoins, or any tokens that are not Bitcoin, are outperforming Bitcoin, then it is deemed “altcoin season.” As of right now, we are not in an altcoin season, as Bitcoin is outperforming almost all other ,major cryptocurrencies in recent months. 

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While Bitcoin is outperforming other tokens, this does not mean that it is doing well in terms of price. The crypto markets have been suffering for some time, with major tokens down upwards of 50% in the last few months.

Where to Buy TerraUSD (UST)

While a variety of crypto trading platforms that support UST have suspended trading, there are still a few places to purchase the asset. FTX and Gemini are among the best trading platforms that still offer the token. These exchanges are known for their security, low fees, and overall ease of use.

To get started trading, register using an email and password. You will have to provide some basic personal information to verify your account. Then you can connect your bank account and begin trading.

1 Minute Review

Gemini is a cryptocurrency exchange and custodian that offers investors access to over 100 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.

Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader. 

In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.

Best For

  • New investors looking for a simple mobile and web app
  • Day traders looking to use technical analysis tools
  • Users looking for a 1-stop-shop to buy, sell and store all of their cryptos

Pros

  • Easy and quick signups — can get started in as little as a 5 minutes
  • Multitude of platforms to accommodate traders of all skill levels
  • Hot wallets include insurance to protect your from theft and hacking attempts

Cons

  • Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app
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BZ

Bonus:

Keep an eye on the price of UST. If Terra is able to bring the price back to $1.00 and keep it stable, then they may be able to regain their users’ trust.

So, Is TerraUSD (UST) Dead?

As of right now, Terra is very close to being dead. Their own stablecoin, something that they were supposed to specialize in, was unable to remain stable. The price fell by over 80% in less than a week, and their native token fell by over 99.99% in the same time frame. The damage has been done, and Terra is scrambling for a solution. 

While the situation for Terra is bleak, a comeback is not out of the question. If they can regain confidence from investors and prove that their algorithm will work, they may be able to secure the investment needed to restore the price of UST. However, this is a monumental task and would require a lot of luck in order for it to succeed. 

Conversely, there is a possibility that Terra closes their doors for good. This would bring a definite end to both UST and LUNA. 

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While it is impossible to say exactly what will happen with UST and Terra, there will certainly be some big changes in the future. These changes will ultimately spell out the coming times for the protocol.

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Bitcoin․com Exchange Market Insights Report For May 2022

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Bitcoin․com Exchange Market Insights Report For May 2022

This is the May 2022 monthly market insights report by Bitcoin.com Exchange. In this and subsequent reports, expect to find a summary of crypto market performance, a macro recap, market structure analysis, and more.

Crypto Market Performance

May got off to a rough start as the Federal Reserve confirmed a hawkish bias on the back of lingering inflation. Markets reacted by going risk-off.

The collapse of LUNA and UST added fuel to the fire, with the result that crypto markets saw historically large drawdowns.

BTC reached a low of $25.4k USD, which is 60% off its all-time high of $65k. ETH saw a comparable drawdown.

Other large-cap coins fared even worse, with AVAX and SOL being down over 75% and 80% respectively from their all-time highs.

During the first week of the month, gaming (play-to-earn) saw the worst performance across crypto sectors, followed by top assets (large caps) with losses of 9.6%, and Web3, which was down 8.9%.

Source: messario.io

Macro Recap: Quantitative Tightening (QT) Is Here to Stay

As expected by the market, on May 3rd the Federal Reserve announced that it had voted for a rate hike of 50 basis points to the funds rate. This announcement was on the back of “robust” job gains and a decrease in unemployment, which has led to increases in inflation. There was also the reduction of the balance sheet, starting from $47B per month to up to $95B per month after the first three months. According to the Federal Reserve’s later statements, System Open Market Account (SOMA) will reduce its holdings of U.S. agency debt and U.S. agency mortgage-backed securities (MBS).

The narrative was focused on uncertainties regarding the macro environment, as Russia’s invasion of Ukraine intensifies and supply-chain issues in China contribute to lackluster growth globally.

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CPI data provided no relief, as it marked 8.3% for the month of April, beating expectations by 20 basis points. April’s numbers were down only slightly from the 40-year high of 8.5% reached in March.

Market Structure: Decrease in Flows and Long-Term Holders Continuing Capitulation

As macro conditions seem to worsen, we take a look at on-chain metrics to better understand price action with the aim of providing a clear view on what could come next. There are two areas we will focus on. These are 1) decrease of profitability by long-term holders (and capitulation) and, 2) stablecoin supply/demand.

The graph below is the Long-Term Holder Spent Price vs Cost Basis, which depicts capitulation in the market by Long Term Holders (LTHs). The blue line represents the Long-Term Realized Price, which is the average buying price of all coins that LTHs hold. This is declining, as you can see from the graph, meaning LTHs are selling off their coins. The pink line represents the average purchase price of the coins being spent by LTHs on that day. As you can see, it’s trending higher, meaning that LTHs are selling at break-even on average.

Source: glassnode.io

Stablecoins are a key component of the market, as they facilitate entries of new players as well as standardizing a unit of exchange for crypto. By looking at the supply of stablecoins we can know whether or not more participants are entering the market. As seen on the graph below, stablecoin supply grew tremendously during the last bull market due to the increase in demand for crypto and thanks to new players entering the market. The supply of major stablecoins went from $5.33 billion to $158.2 billion in less than three years. Note, however, that aggregate stablecoin supply has been flat so far in 2022.

Source: glassnode.io

This was driven mostly by an increase in redemptions of USDC (into fiat), totalling $4.77B since the start of March despite an increase of $2.5B in USDT over the same period. In the below chart, we can see the 30-day change in aggregate Stablecoin Supply vs the Contribution by USDC. USDC has seen a supply contraction by a rate of -$2.9bn per month, which can be identified in the bottom right corner of the graph by the dashed red circle.

Source: glassnode.io

Being one of the most widely used stablecoins, USDC supply contractions indicate a move of money from stablecoins as a whole back to fiat. More significantly, this indicates a risk-off sentiment as well as weakness in the crypto market overall.

LUNA and Do Kwon, The Man Who Flew Too Close to the Sun

In this section we would like to go over the rise and fall of UST and the Terra ecosystem, and the resulting domino effect that impacted the markets. UST, one of the largest stablecoins ever created, was an undercollateralized algo-stablecoin in the Terra ecosystem. It was created and sponsored by the Luna Foundation Guard (LFG), led by outspoken founder Do Kwon.

As an algorithmic stablecoin, UST implemented a two-token system where the UST and LUNA supply should remain similar and where both tokens were redeemable between themselves. If the price of UST exceeded $1, traders were incentivized to burn LUNA in exchange for one dollar worth of UST, which increased its supply and theoretically drove the price back to $1.

Meanwhile, Anchor, a DeFi staking protocol within the Terra ecosystem, was offering “saving account” deals for users to stake their UST. This was paying a whopping 20% APY. Anchor generated this yield by borrowing and lending UST to other users for collateral. A large sum of this collateral was LUNA.

So what went wrong? Due to its early success, the Terra ecosystem grew enormously to become one of the largest projects by market capitalization, at $40B. LFG, led by Do Kwon, began to think of ways to improve the backing of UST. Thus, they decided to back part of their reserves with large cap cryptocurrencies such as BTC and AVAX among others, making UST a multi-collateralized algo-stablecoin. Having done that, the stability of UST peg became inherently correlated with the value of the collateral in its reserves. On May 8th, 2022, 4pool Curve, one of the largest stablecoin pools, saw an increase in UST supply of 60%, as shown in the chart below.

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Source: dune.com

Shortly thereafter, an $85 million UST-to-USDC swap brought the pool back to being only slightly imbalanced. Big players subsequently came in and, by selling ETH in the market, bought the value of UST back nearly to its $1 peg, as shown in the chart below.

Source: Bitcoin.com Markets

You can see that the balance of the Curve pool was temporarily restored to previous levels and the peg was temporarily saved. However, on May 9th, we see that a similar situation occurred when another massive sell of UST was executed on the Curve pool, pushing the imbalance to above 80% of UST in the pool. The price of UST dropped to about $0.60 around the same time. The crypto market entered into a panic and the collateral held by LFG became less valuable in a downward spiral. This impacted the value of LUNA, as it’s supposed to be continuously sold to keep the peg – and this was the beginning of the end. The peg never went above $0.8 from that point on, and the value of LUNA nose dived by over 99%, currently sitting at $0.00026 USD.

A lot of questions are still unanswered from the Terra/Luna episode. Specifically, who was responsible for the massive selling of UST on Curve? Was this an orchestrated “attack” to depeg UST? Why didn’t LFG come up with a contingency plan to stop the devaluation of LUNA and UST? Why was the process of restabilization of the token done manually by the foundation and Do Kwon? Are BTC collateralized tokens safe in highly correlated scenarios?

We are yet to see the aftermath of this black chapter in crypto history, as the Terra ecosystem and UST are mostly marketed towards retail money. You may well see increased scrutiny from regulators towards stablecoins and crypto overall. One thing you must remember from this is that crypto is still an immature market and being the decentralized, crowdsourced environment that it is, comes with high risk. Thus, you should always keep in mind that every investment has its risks and doing your own research continues to be paramount.


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Bitcoin.com Exchange gives you the tools you need to trade like a pro and earn yield on your crypto. Get 40+ spot pairs, perpetual and futures pairs with leverage up to 100x, yield strategies for AMM+, repo market, and more.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Luna Foundation Guard Discloses Usage Of Bitcoin Reserves

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Luna Foundation Guard Discloses Usage Of Bitcoin Reserves

The Luna Foundation Guard, the entity in charge of safeguarding the peg of UST, the stablecoin of the Terra ecosystem, has revealed how it used the available Bitcoin reserve before the recent debacle involving the Terra ecosystem. The organization sold part of the bitcoins owned directly, while another part was traded on different dates to try and stabilize the value of UST. The reserve was comprised of more than 80,000 BTC.

Luna Foundation Guard Clarifies Reserve Movements

The Luna Foundation Guard (LFG), the organization tasked with safeguarding the dollar peg of UST, the algorithmic stablecoin of the Terra ecosystem, has broken its silence to explain the use of the assets it had under its custody. The institution had amassed more than 80K BTC, which was to be used in case of market imbalances affecting the value of terrausd (UST).

According to reports on social media, the foundation spent almost all of its BTC reserves in a failed attempt to save UST. This was made in three different operations. In the first one, LFG sold 26,281,671 USDT & 23,555,590 USDC for an aggregate of 50,200,071 UST, in what was the first defensive transaction against the depeg incident.

Also, the LFG stated it:

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Transferred 52,189 BTC to trade with a counterparty, net of an excess of 5,313 BTC that they have returned, for an aggregate of 1,515,689,462 $UST.

However, the company did not identify the counterparty involved in this transaction.

Last Measures

Even with the intervention of the LFG, the peg was not restored. LFG declares that Terraform Labs exchanged the last of the BTC reserve on May 10, when UST’s market price had touched $0.75. This transaction involved the sale of 33,206 BTC for an aggregate of 1,164,018,521 UST.

The Luna reserve is now comprised of only 313 BTC, meaning that most of the BTC owned by the organization were deployed in the defense effort. Other cryptocurrencies in the reserve, including 39,914 BNB and 1,973,554 AVAX were not used and still are in the possession of the organization. However, there is no clear answer as to how these will be used in the future.

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The statements from LFG help to clarify how the Terra depeg incident happened, and how these funds were used. An analysis of the transactions conducted earlier by Elliptic, a blockchain analytics and compliance company, found that the majority of the funds were sent to two exchanges: Binance and Gemini. However, the company declared that it was “not possible to trace the assets further or identify whether they were sold to support the UST price.”

What do you think about the report on the use of Terra’s BTC Reserve? Tell us in the comments section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Portugal To Tax Cryptocurrency Income According To Minister Of Finance

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Portugal To Tax Cryptocurrency Income According To Minister Of Finance

Portugal, one of the countries considered a crypto tax haven due to its absence of crypto-related taxation, is preparing to change this policy. Fernando Medina, minister of finance of Portugal, stated that the country is working on a framework to allow the taxation of cryptocurrency income gains following the principles of “justice” and “efficiency,” and declared that there cannot be gaps for any income gains to be obtained without taxation.

Portugal to Tighten Cryptocurrency Taxation Policy

Portugal, one of the countries that has been touted as a crypto haven due to the absence of taxation in this regard, is working on the establishment of laws that will allow it to tax these digital assets. The statements on the subject were made by the minister of finance of the country, Fernando Medina, during a state budget discussion.

Medina explained:

Several countries are building their models regarding this matter and we are going to build ours. I do not want to commit myself to a date at this moment, but we will adapt our legislation and our taxation.

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The government had already given signs of its future direction regarding cryptocurrency taxation. The Ministry of Finance asked the Portuguese Tax Authority to study how crypto assets were taxed in other regions in 2021 “in order to propose an adequate tax framework for these new instruments, taking into account the necessary balance between the fair distribution of income and wealth and the attraction of foreign investment.”

Models Still Not Decided

While the models by which cryptocurrency gains will be taxed are still unclear, Medina stated that these would be set up following the principles of “justice” and “efficiency,” aiming for a tax system that would not scare cryptocurrency investments out of the country. Medina declared this system should make taxation “adequate,” but not of an “exceptional character that ends up reducing revenue to zero, which is contrary, in fact, to the objective for which it exists.”

However, he was firm in the belief that cryptocurrency should be taxed eventually, stating that there could not be “gaps that cause there to be capital gains in relation to the transaction of assets that do not have a tax.”

Recently, cryptocurrencies are starting to be used as a means of payment in real estate transactions in Portugal. On May 8, the reported first transaction of this kind happened in the country, when an apartment in Braga was sold for 3 BTC.

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What do you think about the statements on crypto taxation made by Portugal’s minister of finance? Tell us in the comments section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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