Nearly $5 billion evaporated in 2 hours while the Luna crash was in progress

The phrase “everyone is looking forward to the end of the world” is a perfect way to describe market sentiment from 2022. Because the CPI index is overheated, the market is full of calls for interest rate hikes at the beginning of the year, 25 points, 50 points, 75 points…

Now that the rate hike is coming, the market has collapsed, and people have ushered in the end they have been calling for for a long time. Open the financial page, the headline is “The global stock market has experienced the worst day in recent years”, and the VIX panic index has also reached an all-time high since the outbreak of the new crown.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

In such a global crash, there is often a situation called “the Correlation of One”. When large positions are exposed, people have to sell their other assets to fill the hole, causing the prices of all assets to plummet. .

This “panic crash” also affected the currency circle, with both Bitcoin and Ethereum falling to varying degrees. Under the attack of panic and capital siege, Luna has become the worst “victim” of the current encryption market.

At 8am this morning, Luna triggered the “expected” death spiral as the price of Luna fell, leading to mass liquidations. As of now, the price of Luna has fallen to around $29, the lowest price of UST has dropped to around $0.6, and the Luna Ponzi has collapsed again.

This death spiral is the most serious one in the history of “UST’s de-anchoring”. “Luna Ponzi”, a topic only discussed by hardcore players in the currency circle, has even been searched on Weibo today.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

What exactly happened? Let’s sort through the process from the early hours of last Sunday.

On the evening of May 8, the giant whale warning account on Twitter began to “alarm” frantically. Every hour, there was a news of the sale of UST, and the transaction amount was in the millions.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

At this time, the UST had been disengaged to a certain extent due to the selling pressure, and the liquidity of the UST-3Crv pool also began to tilt, but the LFG quickly came forward to fight the fire, preventing the further deterioration of the situation.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

After reading this, you may be curious, isn’t the market value of UST 17 billion? How can such a small-scale sell-off threaten the anchor?

That’s right, UST is the largest algorithmic stablecoin at present, and theoretically it should have the ability to resist strong selling pressure. But there is also a strongly associated protocol with UST: Anchor Protocol.

Sure enough, I was startled. As of May 5, Anchor TVL rose to $18 billion, accounting for almost all of UST’s market capitalization. In other words, almost all USTs on the market exist to earn 20% APY in Anchor!

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Because of the poor market performance, both giant whales and retail investors have all hid in the harbor of stablecoins, and because of the stable and extremely high APY interest rate, exchanging assets for UST and depositing them into Anchor has become the most popular choice for people.

For UST and Anchor, it’s a testament to a successful marketing ploy, but it’s also a grave that LFG has dug for itself. Previously, Rhythm wrote in “The interest rate of stablecoins has been as high as 20% for a long time. Is Anchor also a Ponzi? In the article, it introduces in detail the huge troubles caused by high APY and high TVL for Anchor savings and UST anchoring. What’s more, many people also like the Loop operation to increase their UST leverage and burn Anchor savings. Big hole.

In order to prevent UST from de-anchoring, LFG must ensure that the 18 billion UST locked in the Anchor will not escape in large numbers, because there is almost no liquidity in the market for UST. But we do know that some smart giant whales spotted the problem last Sunday and started a “mass migration”.

The small de-anchoring that occurred on May 8 was extremely negative for market sentiment, especially for Luna and UST holders. From May 9th, a large amount of funds began to flee Anchor, causing great pressure on UST Anchor. Seeing that the situation was not good, LFG immediately carried out a series of radical remedial measures. The following is the finishing of the rhythm tracking report:

05/09/13 :02 – Lend BTC to protect UST peg

LFG announced that it would lend $750 million in BTC to OTC trading platforms to secure the peg between UST and the U.S. dollar. As the market returns to normal, LFG will lend (Loan) 750 million UST to buy BTC.

05/09 14:01 — Announced no plans to cut bitcoin positions

LFG decided to deploy $1.5 billion in BTC/UST liquidity ($750 million in BTC and $750 million in UST) to ease market concerns around UST. And claimed that it would not liquidate its own BTC positions.

08:11, May 10th — LFG address transferred 28,205 BTC, worth $840 million

In the early hours of this morning, about 42,530.8 bitcoins were transferred out of the LFG address, worth $1.27 billion. Afterwards, 28,205.5 bitcoins were transferred. As of the posting, a total of 28,205.5 bitcoins were held under the address, worth about $840 million.

With various remedies, UST’s anchoring situation was stabilized on May 9, but panic in the crypto market continued to spread. Yesterday, the whole market was bloody, which made things worse for Luna. According to DeFi Alpha statistics, Luna will start its first large-scale liquidation near $42, followed by $35, $33, $29…

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

At 7:00 this morning, Luna fell below $42 and triggered liquidation, and UST immediately jumped off the anchor. Half an hour later, Luna fell below $35 to trigger the second liquidation, and UST broke through the previous low of $0.85. Currently, Luna’s price has dropped to $29 and is about to trigger an even larger liquidation, with loans currently worth hundreds of millions of dollars.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

The collapse of Luna and the severe de-anchoring of UST brought a near-destructive blow to the Terra ecosystem. The entire ecosystem was bloodied, TVL fell by 40% and hit $13 billion, and the TVLs of several top protocols also suffered tragically. “Half”.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

According to Coin Marketcap data, the market value of UST lost nearly $4 billion in just a few hours this morning, and is now down to about $14 billion.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

As UST’s biggest “guest man”, Anchor has only $7 billion in deposits, which means that there are still $7 billion in UST that is “displaced” and may be sold at any time. In order to absorb the UST circulating in the market, Anchor’s APY has also been raised to more than 20% once again.

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Nearly  billion evaporated in 2 hours while the Luna crash was in progress

Rhythm has previously explained the endorsement dilemma of UST and the entire stable market, as well as UST’s own coping strategies.

In fact, this severe de-anchoring of UST is not the first time that Luna has triggered a death spiral. On 5.19 last year, UST also experienced a severe de-anchoring, and the price fell to $0.85. Finally, Luna and UST were able to survive and develop under the rescue of LFG. Since then, LFG has made a series of changes in order to prevent similar incidents from happening again, including the new endorsement mechanism of UST.

In fact, it is not a wrong choice to buy the native Token of BTC and other L1 public chains as an endorsement, but it will take some time to realize the full delivery of this new mechanism. It’s a pity that the market did not give Do Kown, a Luna madman, enough chances to redeem. Luna’s collapse this time was lost to time.

Now, what choices will LFG make? Can UST regain its confidence? We will wait and see.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/nearly-5-billion-evaporated-in-2-hours-while-the-luna-crash-was-in-progress/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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