understand all about one of the biggest crypto crashes

It is a very powerful and very brutal outflow that the cryptocurrency market has invited us to follow for the past three days. Along with the fact that Bitcoin and Ethereum fell more than 20% each, the impossible happened with stablecoin TerraUSD (UST), which fell from its dollar tracking on Monday night.

As a result of this unprecedented episode, the price of Luna, a top 10 cryptocurrency in the world, dropped from $ 80 at the beginning of the month to less than $ 0.18 this morning (05/12/22 at 11:45). The losses are almost total for investors who have bought the crypto in recent months. Passed in the 63rd position of cryptocurrencies in terms of capitalization, Luna is dangerously close to zero dollars. One of the biggest cryptocurrency crashes to date.

Last night there was one last jump, which created an increase of over 400% of Luna’s price. But this did not last long, and the baseless speculations quickly disappeared. The Luna Fund, behind the Terra blockchain and its various tokens, had sent a bottle overboard and asked investors to help it recapitalize its tokens. A lifeline that was not enough. The height of the unthinkable: UST stablecoin now costs more than the Luna token.

Terra UST Luna autumn May 2022

Ā© Lemon Squeezer / CoinMarketCap

Why such a fall?

To understand Luna’s fall, we must understand UST’s. As we noted in an article published on Tuesday about its downfall, it is an algorithmic stablecoin that does not rely on a reserve of the fiat currency on which it runs, placed in a bank. TerraUSD is based on an arbitration mechanism, the operation of which is based on the Luna cryptocurrency (from the same Terra blockchain). To put it simply: when the price of a UST goes below a dollar, the exchange mechanism burns a UST against a dollar of Luna.

As a result, Luna’s price fell in bearish pressure, and the sudden arrival of extraordinary volume caused the mechanism to turn around. The cryptocurrency went into a spiral where investors withdrew en masse and the price continued to fall without support or psychological thresholds back. On the contrary, investors are also withdrawing from UST – which had lost what characterized it: the stability of its price.

Consequences in France

In recent months, UST has climbed up the rankings of the most popular stack coins and was number three until this week. Its success is mainly due to deployment platforms, including Anchor (52% of UST reserves), based on the Terra blockchain. With it, investors could deposit a sum of their stack coins on an investment at 19.5% interest. Enough to promise passive income without risk … provided the stack coin does not lose its value.

In France, the French investment service JustMining posted a message on Twitter yesterday to give the warning. For its customers who would have chosen to go through their loan offer to receive revenue on their stack coins, it will be necessary to act quickly because 40% of the product has exposure to UST.

“For example, with a UST of $ 0.52 (11.05.22 at 16:30) and an exposure of 39.58% of the loan, a customer would, under these conditions, validate a loss of 18.98% of his position”explained the company, which has developed its lending service using several specialized platforms, including … Anchor. “No matter what stack coin you invest in on our platform, your capital is divided into different stack coins”including UST.

There is no reason to hope for a return to normalcy on the prices of Terra’s two digital assets. The only chance for hope would be that the Luna Fund, the origin of tokens, finds billions of dollars from investors to recapitalize its tokens. But investor confidence is certainly lost. And no economic analysis can go against that.

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