Could this be the end of $UST / $LUNA?
What a hell of a week!
The past few days have been horrendous in the crypto market, especially in the Terra ecosystem. The $LUNA holders, who identify as LUNAtics have watched $LUNA’s - the Terra native token - price move from $87 to $0 in 72 hours and the TerraUSD (UST) - an algorithmic stablecoin- depeg from the dollar, and as of the time of writing this is worth $0.17. These events have erased over $50 billion from the crypto market.
Many people were overexposed and lost a significant amount of their net worth in course of these events; there are even reports of suicides out of the terra community. If you were affected by this, please stay strong; you will surely recover.
Timeline of the Terra - $LUNA and $UST events:
In a Bloomberg interview with Joe Weisenthal, Sam Bankman-Fried - CEO of FTX Exchange, predicted the fall of the UST when asked for his opinion on Luna and UST. His exact words on the UST are below:
I have some sympathy for the perpetual motion machine crowd here. They may serve some useful purpose, but if you zoom out, okay, and say this is a stablecoin, backed by volatile assets, what will happen in a significant market movement. To the right? Like, you know how it goes.
March 14, 2022
Do Kwon - CEO of Terra Labs announced intentions to back the UST with BTC reserves worth in total of $10 billion. Kwon went ahead to paint the bigger picture which is for UST to be backed by a basket of the top Layer 1 assets like Solana, Avalanche, etc.
Since then, the Terra Lab has grown their balance sheet and purchased Bitcoins (at around $42k) up to $1.1billion with the UST to defend its peg and add to the Luna Foundation reserves.
March 27, 2022
A mysterious entity - a very well capitalized player- borrowed 100,000 Bitcoins from Gemini (worth $3 billion) and were selling into the Luna Foundation Guard for UST, so liquidity gradually moved to a particular entity.
May 7, 2022
The entity went ahead to sell about 350 million USTs, causing the initial destabilization of the peg to around $0.97 and also swallowing liquidity. At this point, the Luna Foundation started to sell the Bitcoins that were purchased to stabilize the peg.
Remember; I mentioned initially that Luna Foundation purchased Bitcoin at circa $42k, but they had to sell Bitcoin at circa $34k because the market had moved downwards, likewise the value of their reserve.
May 8, 2022
The mysterious entity went ahead to sell additional 650 million USTs swallowing more liquidity and further depegging the UST to about $0.92. At this point, there was fear in the market and this instigated retail traders to sell their UST and LUNA tokens causing further depegging and a downward trend to $0.7 and then to $0.2.
Selling Bitcoins by the Luna Foundation further drew the BTC price downwards, causing a general market catastrophe. LUNAtics lost confidence and it became a game of the first to exit. This caused a massive drawdown in the $LUNA value and one of the most promising tokens ran off from its ATH $119 to zero in just a week.
May 13, 2022
The Terra Blockchain was officially halted
Binance, and other major exchanges, temporarily suspends LUNA UST trading after its value dropped by almost 100%, after the UST stablecoin depegged from the dollar.
Although Terra attempted various rescue missions, many are convinced that LUNA and UST will most probably fail.