Terra Luna crash: ‘I alone am responsible,’ says CEO Do Kwon in first interview since collapse

TerraUSD is an algorithmic stablecoin that tries to maintain the same value as the US dollar by using a complex seesawing mechanism with a related cryptocurrency, which is called Terra Luna . While 1 TerraUSD is always supposed to be worth exactly $1, the value of Luna can fluctuate. In essence, TerraUSD uses Luna as a counterweight to maintain its dollar peg.

Next, let’s imagine the price of LUNA falls to $1 for no good reason. This means that someone could now redeem their UST for 1 million LUNA. As a result, many traders tried to take advantage of arbitrage, exchanging 90 cents of UST for $1 worth of LUNA. Easy Crypto wants to make it easy for anyone to get into the crypto market – no matter how much they have to invest.

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To claim a worthless security on your taxes, you have to formally abandon it and/or provide documentation that it has no value, such as a letter from the company saying it has ceased operations. Capital losses on UST or LUNA may be used to offset income and capital gains. Originating in social sciences, she is especially interested in the social impact of blockchain and cryptocurrencies and strongly believes in their transmuting power. This means that Bitcoin is concentrated among fewer and fewer individuals.

Terraform Labs created the UST coin to be an algorithmic stablecoin on the Terra network. While other stablecoins are fiat-backed, the UST would not be backed by real assets. Terra network and its leader, Do Kwon, rose to prominence in the cryptocurrency world over the course of four years, all ending in a disastrous fall from grace. The Luna crypto network collapsed in what’s considered the largest crypto crash ever, with an estimated $60 billion wipeout, shaking the global digital currency market. Luna, the sister cryptocurrency of controversial stablecoin TerraUSD, dropped to $0.

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For this stabilizing price mechanism to work, users can redeem 1 UST for $1 worth of LUNA, even if UST is worth less than $1. If you’ve been investing in crypto for a while now, you should have already experienced the benefits of diversification. On one hand, one coin may be rising in price faster than all the rest, which allows you to earn potentially higher returns. Diversifying across different cryptocurrency protects us in the unlikely event that one fails just like LUNA. Crypto’s high volatility can help traders make a decent amount of money with relatively small capital. However, this doesn’t mean that crypto is a magical land where money grew out of the ground like mushrooms.

• Users can always redeem 1 UST for $1 worth of LUNA, even if UST is worth less than $1; a condition necessary for the price stabilizing mechanism of UST.
• Removing so much asset value from an otherwise deep liquidity pool makes prices of UST in that pool more volatile.
• However, an algorithmic stablecoin, like UST, involves using a complex algorithm based on a smart contract.
• Terra and TerraUSD (a stablecoin – UST for short) are both native tokens of the Terra network.

On the contrary, however, Anchor Protocol reserves actually dwindled. So, no wonder that UST holders were far more interested in saving UST on Anchor. Meanwhile, LUNA continues to be minted by the algorithm in an attempt to rescue UST from further devaluation.

What is UST?

In this blog, we’ll discuss several common scenarios that traders are facing, and how each one may affect crypto taxes. Even with decreasing prices, the number of whales dropped from 2,150 to 1,695. The last part is particularly interesting as whales tend to wait out the winter prices.

• There are unconfirmed expectations about their future use, and certain doses of FOMO among small investors.
• It did this through the use of a cryptocurrency pegged to a real-life currency.
• Nonetheless, this huge selling pressure initially pushed the price of UST down to 91 cents.
• When investors smell a downswing coming, they put their money on stablecoins like tether, USDC and, until this week, UST.
• What this meant was that when crypto investors were beginning to adopt the Terra ecosystem, they effectively had to purchase the LUNA tokens from these anonymous and VCs’ wallets.
• UST’s success has allowed it to become the fourth largest stablecoin behind tether , USD coin and Binance USD , surpassing $15 billion in market capitalization.

In a panic, more people sold off UST, which led to the minting of more Luna and an increase in the circulating supply of Luna. On May 7, over $2 billion worth of UST was unstaked , and hundreds of millions of it were quickly liquidated. There’s debate as to whether this happened as a response to rising interest rates or if it was a malicious attack on the Terra blockchain. As a result, traders started to change 90 cents worth of UST for $1 of Luna. Analysts are deeply skeptical about the chances of Terra’s revived blockchain being a success.

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The Luna meltdown impacted the entire cryptocurrency market, which was already highly volatile and experiencing difficulty at the time. It’s estimated that the Luna crash ended up tanking the price of bitcoin and causing an estimated loss of $300 billion in value across the entire cryptocurrency space. Terraform Labs founder and CEO Do Kwon created the Luna Foundation Guard, a consortium whose job it is to protect the peg. 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. If UST dipped below $1, bitcoin reserves would be sold and UST bought with the proceeds. 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.

This is happening, at least partially, due to global inflation and concerns over the Federal Reserve’s interest-rate hike. In addition, the cryptocurrency market continues to feel the ripple effects of Terra’s collapse. As previously covered by U.Today, kraken gains first mtf license from fca for crypto futures venue thanks to the large-scale withdrawals from over-hyped Anchor Protocol and subsequent panic selling, TerraUSD stablecoin lost its peg to the U.S. dollar. Benzinga crafted a specific methodology to rank cryptocurrency exchanges and tools.

Will LUNA Crash again?

All this death spiral would not have been triggered had an alleged “financial attack” not occur. Anchor Protocol can be considered how to exchange small amounts of cryptocurrency as Terra’s principal “crypto bank”. The system was running well when LUNA’s price was generally in an uptrend.

The cryptocurrency market is in turmoil, exacerbated by the collapse of luna and the UST stablecoin, both tied to the terra blockchain. However, things took a u-turn when large amounts of TerraUSD were suddenly withdrawn from things you need to know about storing your bitcoin Anchor based on the rumor that Terra was changing the fixed rate of 20% interest to a variable rate. This caused panic among investors, who then started selling off their Terra tokens and swapping them for other stablecoins.

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As of May 30, the coin is stagnant at around 200 baht, according to crypto exchange Bybit. Terraform Lab’s Luna cryptocurrency is now one of the ten largest cryptocurrencies by market capitalization, according to CoinGecko. This is, unfortunately, the exact scenario that took place this month after wealthy UST holders commenced a short attack against the stablecoin. Investors were incentivized to redeem their UST holdings for LUNA en masse, hence creating an oversupply of the token. The result was a death spiral whereby the value and credibility of both UST and LUNA crumbled to nothing.