How did Terra Coins Worth $60 Billion Disappear?

Posted by lendenx 30 days ago (

Description: A cryptocurrency category called stablecoins has been attempting to recreate reliability in completely different ways. TerraUSD is often referred to as UST and its sister cryptocurrency Luna; their respective market value was falling to the lower level of $60 billion they once had. This plunge has caused concerns that extend beyond its small portion of the stablecoin market. TerraUSD’s Model TerraUSD was tied to the token Luna where the price was determined according to the marketplace. Since one UST could be defined as equivalent to the value of $1 in Luna which meant that even though Luna’s value for UST will differ, the holder of one dollar in UST will always receive the value of $1 in return. This created arbitrage rewards for traders, which were created to maintain values of UST close to $1. Critic’s point of view Some considered UST as a brand new type of Ponzi scam. Others were more polite and stated that Terra’s business model contained a weakness at its root – the peg of UST to Luna. They could only maintain their value when more people purchased them. Between April’s close and Luna’s collapse, Anchor burned nearly $100 million worth of UST in its reserves to meet the increasing demand for high yields. What Happened? It is unclear what caused the initial decline in the demand for UST, however, Anchor had cut its yields by 20 percent to 18 percent on May 2nd. Within a couple of days, the majority of UST was removed from Curve Finance, a decentralized exchange. Kwon announced on Twitter that his company Terraform Labs had withdrawn $150 million UST from Curve to make way for a brand new “liquidity pool” which would be launched on the exchange. However, around simultaneously, a whale swapped around $84million worth of UST for a currency known as the USD Coin, through the exchange.

Category: Finance

Tag: cryptocurrency, trading