The entire Terra ecosystem has been at the forefront of all things crypto for the past few days. Its stablecoin – UST – has lost its peg. LUNA – the other cryptocurrency in the ecosystem – lost 99.9% of its value in a few days and continues to crash.
Do Kwon – the CEO of Terra – has been the center of much discussion in the cryptocurrency industry lately, and in a recent interview he said that “there is entertainment watching companies die. “. Ironic.
The UST-LUNA debacle
A few days ago, UST – the algorithmic stablecoin of the Terra ecosystem – lost its peg. Although not a first for UST, this time was different.
As of this writing, the UST is trading at 0.63 USDT, which is far from parity with the dollar. It is also important to keep in mind that its price has dropped to a low of 0.225 USDT (on Binance).
When this happens, the way UST’s algorithm works is that it allows users to trade 1 UST and get $1 worth of LUNA. And since the price of UST is below $1, there is a huge arbitrage opportunity.
Now, this in turn creates another problem – traders can afford to acquire LUNA at a price below the market, and the greater the difference with the peg, the greater the spread will be. Additionally, this creates new LUNA tokens, diluting the existing supply and creating a literal infinite loop where as long as the UST price is below the peg, the arbitrage opportunity will never cease to exist. ‘to exist.
This is why LUNA’s price has crashed 99.9% in the past few days, and its supply has risen viciously – from 460 million yesterday to over 12 billion today, and it continues to rise. ‘increase.
Do Kwon 8 days ago
Many community members, including well-known influencers, prominent analysts, traders and investors, pointed out that LUNA has managed to attract a lot of retail interest over the past year due to its rise. dazzling.
It’s safe to say that a lot of people who didn’t see this coming lost a lot of money. The protocols that are also related to the UST and its mechanisms are also going through massive upheaval.
Do Kwon, known for his eccentric comments resembling “your height is not the height” meme, and many others, also spoke to one of the biggest chess streamers – Alexandra Botez – exactly eight days ago. Botez asked him how many new companies entering the industry will stay versus how many will fail.
95% will die. But there’s also entertainment in watching companies die, too.
The rest is history.
Image courtesy of Nairametrics
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