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    Some Updates on LUNA – UST Collapse

    LUNA

    After the catastrophic sell-off and the announcement of “sacrificing LUNA to save UST”, LUNA price bottomed out at $0.45. Within a week, the price of LUNA dropped by as much as 99.21%. At the time of writing, LUNA price is temporarily stabilizing around $1.06, with a market cap of $1.7 billion.

    For comparison, at its peak in early April 2022, LUNA had a market cap of $41 billion, making it the 8th largest cryptocurrency by market cap. When LUNA was dumped to $0.69, its market cap was only $570 million, ranking 80th.

    Looking back at history, there is only one project in the top 10 by market cap that has had a collapse as quickly and serious as Terra – It was BitConnect in early 2018. Terraform Labs CEO Do Kwon on the afternoon of May 11 announced a recovery plan for $UST. In essence, the team will mint four times more UST than usual. This means additional LUNA would be minted and sold in the market to try and bring UST’s peg back to $1. According to Messari, in the last 24 hours, the total supply of LUNA has increased by nearly 1.3 billion tokens, showing that Terraform Labs is massively releasing LUNA to reduce the supply of UST in the market.

    UST

    TerraUSD (UST), the algorithmic stablecoin of the Terra ecosystem, at one point dropped to $0.22 on the afternoon of May 11th. By evening, the value of UST was only $0.25 when Bitcoin dropped sharply because of US inflation news. However, when the market recovered with the plan “sacrifice LUNA to save UST”, this stablecoin has risen sharply to 0.65-0.7 USD at the time of writing.

    UST’s market capitalization has now recovered to $9.4 billion after bottoming out at $4.9 billion on the afternoon of May 11.

    Mr. Do Kwon announced his intention to turn UST into a backed stablecoin in the near future to restore the price of 1 USD, but it is not clear how. Another question is, even if UST returns to 1 USD, will users still trust this stablecoin in particular and the Terra ecosystem in general to continue using it?

    Terra Ecosystem

    Total Value Locked (TVL) of the Terra ecosystem on the morning of May 12 was 4.09 billion USD, down sharply from 29.65 billion USD in early May. With the new TVL level, Terra is only a large ecosystem of 6 crypto markets, falling from 2nd place a few days ago.

    The amount of UST deposited on the Anchor Protocol also dropped from $14 billion to $2.9 billion before UST de-peg. At the same time, the amount of UST borrowed also decreased from 3 billion UST to 317 million UST. The project’s token price ANC also lost 90% in the past 72 hours.

    Conspiracy Theories

    There have been many “conspiracy theories” that the collapse of LUNA-UST is related to large investment funds from the traditional financial industry, namely Citadel and BlackRock. However, both of them in the past hours have denied being involved in this crash.

    Gemini, the platform that is said to process transactions of Citadel and BlackRock, also claims that the above theories are not true. In addition, many large DeFi investment funds/projects in the crypto industry also claim to have no connection to LUNA and UST to reassure users that they will not be affected by the crash.

    To make matters even worse, CoinDesk claims to have found evidence that Do Kwon is also the anonymous founder of Basis Cash, a failed algorithmic stablecoin project. Mr. Do Kwon  thus gained the experience to build UST, similar to the founder of the recently controversial Azuki NFT project.

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