Today we bring you an analysis of what has happened during the last few weeks in the crypto market.
As you may have seen, much has already been said about what has happened during the last few weeks in the crypto market and the scaremongering and sensationalism have not been long in coming and have been all over the news in various media around the world. Therefore, from CryptoTechFin we want to keep you informed from the maximum possible objectivity about the latest developments in the crypto sector and in a clear and understandable way for everyone.
What happened with UST (TerraUSD) and LUNA?
During the early hours of last May 7, the stablecoin originating from the Terra ecosystem, UST, one of the members of the top 10 in the crypto world by
market capitalization, lost its parity with the dollar dragging LUNA to one of the most brutal falls experienced in the crypto sector, accumulating a 95% drop.
UST is an algorithmic stable cryptocurrency that is essentially backed by LUNA tokens through an issue and burn mechanism. In crypto markets, one speaks of "burning cryptocurrencies" to taking them out of circulation from the market.
In the case of UST, its value began to fluctuate downward since last Monday, May 9, reaching a value of only 22 cents per UST, representing a drop of almost 80%, something never seen in the context of stable coins, moving not only to LUNA, but to the entire crypto market.
And after reading all this you may wonder, but how could something like this happen?
According to data revealed by Terra itself (Terraform Labs), the parent organization of both cryptocurrencies, in the days prior to the UST crash, a large part of their liquidity was suppressed. The information details that large amounts of UST were removed from the protocol by which it is governed (DeFi Curve Finance), a situation that affected the stablecoin's parity and encouraged arbitrage around the token.
For those of you who are not familiar with the term, cryptocurrency arbitrage is the action of buying cryptocurrencies on a particular exchange and then selling them on another exchange. then selling them on another exchange at a higher price than the purchase price and thus earning a profit.
Thus, TerraUSD (UST) fell below its stable level of $1, 1UST setting off all the alarms. The collapse started on Saturday, May 7 and dragged the cryptocurrency LUNA into a steeper fall.
In the early hours of Sunday, May 8, LUNA Foundation Guard (LFG), the entity in charge of guarding and distributing the funds raised by Terra's ecosystem for its stablecoin (UST), announced that it would use up to $1.5 billion in funds raised by Terra's ecosystem for its stablecoin (UST). ilize up to $1.5 billion in cryptocurrencies, including $750 million in BTC to buy UST and bring the stablecoin back to parity with the dollar.
As you may already know, these measures did not achieve the desired success and did not prevent UST from plummeting against the dollar.
Moreover, it did not end there, as the total number of LUNA tokens in the market was hyperinflated because the protocol by which it is governed (DeFi Curve Finance) tried to restore UST parity by creating new LUNA tokens in exchange for burning UST.
As a result, those who at the time were buying LUNA taking advantage of its drop to its all-time low were providing exit liquidity to those trying to get rid of their USTs.
This situation of chaos and confusion surrounding the value of LUNA in turn caused enormous buying pressure, pushing its value on May 14 up to 60,000% from it's all-time low reached a day earlier.
Stay tuned to our blog because we are gathering all the information and we will explain the consequences of this crisis for our clients.
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