ust - Pwim.Net

Jul 24 Trading Analysis: What Bloodbath?

Trading Crypto with Eugene is a series of daily commentary of market analysis and trading advice shared by Eugene Ng of Matrixport, a veteran trader with 10 years of experience in top-tier global investment banks. If you like the article, please follow us here on Blockchain.News so you won’t miss our future publications.

Quick Friday note before the weekend. US stocks smacked lower with UST 10yr closing 58 bps and crude slumping. 10-year real yields is actually -88 bps today?! Nasdaq got hammered down more than 2.5% last night as US Jobless Claims disappointed, increased U.S.-China tension and Tesla giving up all of its +6% opening gain to only close down on the day 5%. Maybe Robhinhood users caught hold of my tweet last night about pressing the “red button”.

Despite stonk’s bloodbath, BTC managed to close higher on the day with some short squeeze liquidation through $9600 level. I am actually surprised that we are still trading at current levels, would only be a matter of time that we see us retracing back some of its gains, which was why I said yesterday, we need to continue to monitor the momentum of capital into BTC… If there isn’t MoMo, we are likely going back to our low-volatility summer, so you know what to do now. Goodluck and enjoy your weekend.
Chart of the day: When a picture paints a thousand words…

DisclaimerOpinions expressed are solely the analyst’s own and do not express the views of Matrixport the company.The views and opinions expressed in this article are those of the contributor and do not necessarily reflectthe view of Blockchain.News.

Terra Erases 12 Months Bullish Gains with 94% Drop in Value

The Terra community is almost in disarray as the ecosystem’s two flagship tokens, including LUNA and UST are on a freefall amid the most bearish sentiment the blockchain protocol has ever seen.

While the algorithmic UST stablecoin has completely lost its peg against the US Dollar, trading at $0.7158 at the time of writing, the stablecoin dropped as low as $0.2998 during the intra-day trading.

LUNA on the hand has shed off all of the gains it has accrued over the past 12 months as it slumped to its 52-weeks low of $0.8384. The fall of the LUNA comes off as a bigger surprise to the crypto world as such a plunge is uncommon, especially for an established blockchain protocol that attained its All-Time High (ATH) of $119.18 barely a month ago.

In his explanation of the cause of the current situation, Do Kwon, the founder of the Terra blockchain protocol said in a tweet that “the price stabilization mechanism is absorbing UST supply (over 10% of total supply), but the cost of absorbing so much stablecoins at the same time has stretched out the on-chain swap spread to 40%, and Luna price has diminished dramatically absorbing the arbs.”

While he did not discount the challenges the next couple of weeks will bring while trying to rebuild the protocol, he promised to be there every step of the way.

Yet, crypto experts believe that the crash of UST would stablecoins are still valuable by playing robust roles in the volatile market.

“It’s important now to acknowledge that Terra is a so-called algorithmic stablecoin, not directly backed by USD. The most popular stable coins like Tether (USDT) and USDC are actually backed by USD in the bank and both of those survived yesterday’s market sell-off well,” Ransu Salovaara, CEO at Likvidi, said.

“The de-pegging will likely result in a substantial regulatory risk – if not for the whole crypto space, then certainly for the stablecoins market. Anto Paroian.” said Chief Operating Officer, at crypto/digital asset hedge fund ARK36.

The promise of Kwon is a very significant one in the broad attempt to return LUNA and UST back to their glory days. While investors are currently doubtful of the next path for the two digital currencies, the scenario playing out now is different from those of Sushiswap when the founder, Chef Nomi rug pulled that he sold off his SUSHI tokens.

Sam Bankman-Fried took over the project at the time and helped it regain its balance. Do Kwon said he is still committed to the recovery of the LUNA tokens and this should come off as good news to those looking to hold the coins for much longer.

“Terra’s return to form will be a sight to behold. We’re here to stay. And we’re gonna keep making noise,” he tweeted.

Bitcoin Hits a 16-Month Low of $26K as Effects of the Terra Crash Spill Over

Bitcoin (BTC) nosedived to lows of $26,595, a scenario not seen since Dec 30, 2020, when the leading cryptocurrency dropped below the $27,000 zone.

Even though Bitcoin had regained momentum to hit $27,769 during intraday trading, the top crypto continues to limp based on factors like Fed’s interest rate hike and the Terra crash.

TerraUSD (UST) and Luna (LUNA) are two tokens mainly supported by the Terra network, a blockchain project developed by South Korean-based Terra Labs.

LUNA sent shockwaves to the crypto market because it collapsed to nearly zero in just a day.

Source: TradingView

LUNA was previously one of the largest cryptocurrencies based on more than $40 billion in market capitalization. It had shed off 97% of its value in the last 24 hours, according to CoinMarketCap.

Terra’s UST was also not spared because it fell to lows of $0.225 this week despite it being the third largest stablecoin globally after Tether (USDT) and USD Coin (USDC). Market insight provider IntoTheBlock noted:

“As the stablecoin UST fell to $0.225 overnight, the number of transactions happening reached a new high, representing a 13x increase against the previous 2 days. Investors are rushing to sell their UST positions.”

Source: IntoTheBlock

Despite UST recovering to $0.63 during intraday trading, it is still below the expected $1peg.

Therefore, Bitcoin is still suffering from the receiving end based on the shockwaves triggered by intensified liquidation of UST and LUNA.

Moreover, the leading cryptocurrency faces additional pressure because the Luna Foundation Guard intends to revive UST by selling its BTC reserves worth $3 billion.

Nevertheless, as Bitcoin continues to trade in the extreme fear territory, time will tell how it plays out in the short term because events of intense fear are often followed by bullish momentum.

Will Terra’s UST and LUNA Crash Cause a Shift to ‘Cryptos that have Stood the Test of Time’?

LUNA has left crypto enthusiasts’ mouths agape because they could never imagine in their wildest dreams that one of the top ten cryptocurrencies could collapse to near-zero overnight.

LUNA and TerraUSD (UST) are the native tokens of the Terra blockchain network developed by South Korean fintech firm Terraform Labs.

LUNA sent shockwaves to the crypto market because it nearly lost 100% of its value by hitting an all-time low of $0.027 on May 12 from the all-time high (ATH) price of $119.18 recorded nearly a month ago on April 5, according to CoinGecko.

Source: TradingView

As one of the top ten cryptocurrencies, LUNA’s market capitalisation had surpassed $40 billion, but the present crash drove it to lows of $349,000.

The algorithmic UST stablecoin on the Terra network was not spared either because it nosedived to historic lows of $0.29 on May 11. The stablecoin’s ATH was recorded on January 11, 2021, when the price soared to $1.09, according to CoinGecko.

What caused the crash?

Things started going south when UST’s price experienced a free fall to the extent that leading crypto exchange Binance temporarily halted its withdrawals together with that of LUNA.

Anshul Dhir, the co-founder and COO of EasyFi Network, opined:

“Terra’s fall could be attributed to large scale selloffs of the LUNA tokens owing to the reported “de-peg ” of the algorithmic stable coin. This selloff must have also got exacerbated with the market already being in a largely bearish mode.”

The algorithmic nature of UST could have triggered the crash because its value is not directly pegged to the US dollar, according to Ransu Salovaara, the CEO of decentralised finance platform Likvidi. He added:

“It’s important now to acknowledge that Terra is a so-called algorithmic stablecoin, not directly backed by USD. The most popular stable coins like Tether (USDT) and USDC are actually backed by USD in the bank and both of those survived the market sell-off well.”

Therefore, the current crash shows the problems associated with algorithmic-based stablecoins because they are at the experimental stage.

Dhir pointed out:

“Experimental algorithmic stable coins are volatile and it is believed that it will take some time to find a good algorithmic stable coin. Over a period of time such programmable money should be possible which ultimately is the end goal of decentralized finance.”

Explaining the current fiasco, Do Kwon, the founder of Terraforms Labs, took to Twitter and tweeted:

“The price stabilization mechanism is absorbing UST supply (over 10% of total supply), but the cost of absorbing so much stablecoins at the same time has stretched out the on-chain swap spread to 40%, and Luna price has diminished dramatically absorbing the arbs.”

Was Do Kwon the face behind the failed algorithmic Basis Cash stablecoin?

Former Terra employees claimed that Do Kwon, the company’s CEO behind the Terra network, was one of the pseudonymous co-founders of the failed algorithmic Basis Cash (BAC) stablecoin.

Hyungsuk Kang, a former Terraform Labs engineer, noted that BAC was a side project. He added:

“Basis Cash wasn’t tested at the moment, and we weren’t even sure it would work. Kwon wanted to just test it out. He said that this was a pilot project for doing that.”

Launched in late 2020 on the Ethereum (ETH) network, Basis Cash was deemed a game-changer that could revive the decentralised finance (DeFi) Sector.

However, BAC never saw the light of day because it dropped below the $1 peg and traded below the 1 cent mark on May 12 by hovering around $0.0059, according to CoinGecko.

Just like UST, Basis Cash had to maintain the $1 threshold through code and not collateral. Therefore, history seems to be repeating itself concerning LUNA and UST.

‘Cryptocurrencies that have stood the test of time’

On January 3, 2009, Bitcoin’s genesis block was mined, setting the ball rolling on what the crypto space would offer.

Thirteen years down the line, Bitcoin’s dominance in the crypto sector continues to be felt even though its journey has not been smooth sailing.

For instance, as the coronavirus (COVID-19) pandemic continued to wreak havoc in early 2020, Bitcoin shed off more than 50% of its value in less than 48 hours on March 12, commonly called the ‘Black Thursday’ based on the global stock market crash.

As panic selling engulfed the market, Bitcoin’s price nosedived to $3,800 from around $8,000.

However, these scenes did not stop BTC from attaining the then all-time high (ATH) of $64,800 a year later in April 2021.

A month later, the leading cryptocurrency found itself on the receiving end after plummeting by more than 50% to hit lows of $30K based on Chinese authorities’ intensified crackdown on crypto mining.

Nevertheless, Bitcoin scaled the heights to set a new ATH of $69,000 in November 2021.

Despite the present bearish picture, Bitcoin has shown that it’s a hard nut to crack based on the ups and downs endured in its 13-year journey.

Veteran trader Peter Brandt believes Bitcoin is the face of crypto. He pointed out:

“This decline is just plain Lunatic LUNA. I have spoken open about my distrust of altcoins and that crypto is Bitcoin and Bitcoin is crypto. The problem is that distrust in that which is distrustful can spill over into that which is trustworthy (Bitcoin).”

Source: TradingView

Ethereum has also been in existence for close to seven years, and it is crafting a name for itself in the DeFi sector.

Therefore, the LUNA and UST crash might shift the narrative to more established cryptocurrencies that have stood the test of time.

Terra Resumes after Halting Blockchain Production to Prevent Governance Attacks

Terraform Labs, the company which supports the Terra ecosystem, briefly halted the Terra blockchain for two hours on Thursday after a dramatic slump in LUNA and UST, before restarting at around 1:45 p.m. local time.

The company said the suspension of the network was to implement a patch preventing users from staking on its network.

Terraform explained it briefly that the suspension of blockchain operations as LUNA’s price dropped too low, that need to “prevent governance attacks” adding that:

“Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.”

The Terra blockchain network stopped generating new blocks after its block height was 7603700, meaning holders could not move their Terra assets until the blockchain was unfrozen.

At the time of writing, the Terra stablecoin TerraUSD (UST) was off the $1 level it was supposed to hold, trading at $0.1288, losing its peg to the U.S. dollar.

The founder behind it, Do Kwon, noted in a series of tweets “Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to re-peg. There is no way around it.”

By late Thursday, LUNA had fallen to less than $0.50 from nearly $120 in early April. LUNA pared all of the gains it had accumulated over the past 12 months.

Luna Foundation Guard Details About Depleted Reserve

The Terra blockchain as we know it has come to its end and post mortem analysis from the Luna Foundation Guard (LFG) shows the not-for-profit organization has almost used up its reserve as confirmed in a tweet shared early on Monday.

The LFG is the body that was tasked with developing the digital assets reserve base for the TerraUSD (UST) stablecoin.

A little more than a week ago, the LFG said it has a balance of 80,394 Bitcoin (BTC), 39,914 Binance Coin (BNB), 26,281,671 USDT, and 1,973,554 Avalanche (AVAX) amongst others. In the wake of the de-pegging of the UST stablecoin from its projected $1.

LFG said it liquidated some of its Bitcoin holdings on top trading platforms to help restore the peg.

“Consistent with its non-profit mission & focus on the health of the Terra ecosystem, beginning on May 8, when the price of $UST began to drop substantially below one dollar, the Foundation began converting this reserve to $UST,” the LFG said in a tweet adding that “the Foundation did so by directly executing on-chain swaps and transferring $BTC to a counterparty to enable them to enter trades with the Foundation in large size & on short notice.”

Through its efforts, the LFG said it directly sold 26,281,671 USDT and 23,555,590 USDC for an aggregate 50,200,071 UST. The organization also noted that it transferred 52,189 BTC units to trade with a counterparty, net of an excess of 5,313 BTC that they have returned, for an aggregate of 1,515,689,462 UST.

After these transactions, the LFG said it now has only 313 BTC units with no stablecoins left and a host of its other reserve assets.

Seeing the massive plunge in UST price, the LFG said its primary focus now is to compensate holders of UST before the algorithmic stablecoin suffered its attack.

Changpeng Zhao Clarifies Binance's Investment in Collapsed Terra

Terra’s ship sailed gallantly but has now collapsed following a series of algorithm attacks that made the blockchain network’s native token LUNA plunge to what many see as an irredeemable level.

With so many experts wondering what is going on, Binance’s Chief Executive Officer, Changpeng Zhao has come out to clarify the investments the trading platform has in the Terra ecosystem in what appears as a response to false claims going around on Twitter.

According to CZ, as he is fondly called, Binance invested $3 million in Terra back in 2018 when the project was labeled a Layer 0 blockchain, and the trading firm did not invest in the protocol in its second financing round. CZ said Binance did not also make any acquisition of UST, the network’s algorithmic stablecoin that is no longer maintaining a peg with the US Dollar.

“I need to address falsehoods circulating in crypto twitter,” Zhao said in the Twitter thread, “Binance did not participate in the 2nd round of Luna’s fund raising nor did we acquire any UST. Binance Labs invested $3m USD in Terra (the layer 0 blockchain) in 2018. UST came much later after our initial investment.”

The CEO noted that the exchange has made hundreds of investments over the years and while some turned out very successful, there are a number of others who end up by the wayside.

Changpeng Zhao also lends his voice to the Terra ecosystem’s validator’s proposal to fork the blockchain and create Terra2 by taking a snapshot of LUNA token holders’ balances prior to the network’s attack and eventual price slump. To CZ, “Minting, forking, don’t create value,” but burning and token buyback do.

At the moment, there are approximately 6.5 trillion LUNA tokens in circulation, and burning or buyback, according to CZ can be very expensive. While CZ has promised further support beyond the relisting of LUNA/USDT spot trading shortly after halting the services, the CEO however, demanded transparency and accountability.

South Korea Launches “Emergency” Inspection of Crypto Exchanges Following Terra Crash

Financial authorities in South Korea have beefed up crypto exchange inspections to boost investor protection following the recent collapse of LUNA and TerraUSD (UST) tokens

Per the announcement:

“The Financial Services Commission and the Financial Supervisory Service (FSS) have recently asked local cryptocurrency exchange operators to share information on transactions linked to TerraUSD and Luna, including the volumes of their trading, their closing prices, and the number of relevant investors.”

The financial watchdogs are also scrutinizing what caused the recent market crash and creating countermeasures for future events.

Confirming the ongoing inspection, an official of a local crypto exchange stated:

“Last week, the financial authorities asked for data on the number of transactions and investors and sized up the exchanges’ relevant measures. I think they did it to draw up measures to minimize the damage to investors in the future.”

Nearly 200,000 investors in Korea are speculated to have invested in LUNA and UST.

Despite the Terra tokens being invented by a Korean national, the authorities are taking the case seriously because they were traded globally. Do Kwon, the CEO of Terraform Labs, is the face behind the Terra blockchain.

The Terra ecosystem has been making headlines over the past week because LUNA collapsed to near-zero overnight despite being one of the top ten cryptocurrencies.

Kwon has proposed hard forking the Terra blockchain so that the troubled network can be salvaged, and if his suggestion is implemented, the new chain is set to go live on May 27.

Following the Terra crash, Kwon has been the centre of scrutiny, with some quarters suggesting that he was one of the pseudonymous co-founders of the failed algorithmic Basis Cash (BAC) stablecoin.

Therefore, history seems to be repeating itself because Basis Cash had to maintain the $1 threshold through code and not collateral, just like UST.

Do Kwon Suggests Terra Hard Fork to Revive Troubled Network

Do Kwon, the CEO of Terraform Labs, believes hard forking the Terra blockchain will play an instrumental role in saving the troubled network.

In a series of tweets, Kwon suggested:

“The Terra chain as it currently exists should be forked into a new chain without algorithmic stablecoins called “Terra” (token Luna – LUNA), and the old chain be called “Terra Classic” (token Luna Classic – LUNC). Both chains will coexist.”

According to Investopedia, a hard fork refers to a radical change to the protocol of a blockchain network that effectively results in two branches, one that follows the previous protocol and one that follows the new version. In a hard fork, holders of tokens in the original blockchain will be granted tokens in the new fork as well, but miners must choose which blockchain to continue verifying.

After being forked, the new chain, Terra (LUNA), will not support the algorithmic TerraUSD (UST) stablecoin, whereas the old one will house the Luna Classic (LUNC) token.

Kwon’s proposal for a hard fork is based on the lack of a consensus among different stakeholders. He stated:

“Competing interests from varied stakeholders (e.g.,$LUNA holders, UST holders, Terra builders, etc.) make it extremely difficult and unlikely to achieve consensus on a cohesive, congruent plan.”

Therefore, the new LUNA will be airdropped to residual UST holders, essential app developers, and LUNC holders.

The rain started beating the Terra network after UST’s price experienced a free fall to the extent that leading crypto exchange Binance temporarily halted its withdrawals together with that of LUNA.

Things got worse for LUNA, given that it sent shockwaves to the crypto market by collapsing to near-zero overnight.

At the time, Kwon pointed out that the price stabilization mechanism had a hand in the problem. He noted:

“The price stabilization mechanism is absorbing UST supply (over 10% of total supply), but the cost of absorbing so much stablecoins at the same time has stretched out the on-chain swap spread to 40%, and Luna price has diminished dramatically absorbing the arbs.”

If Kwon’s proposal sees the light of day, the new chain will go live on May 27 because he trusts that Terra is more than UST.

Terraform Labs, Luna Foundation Guard Bought 3.06m AVAX in total: Avalanche Foundation

The Avalanche Foundation announced via Twitter on Friday that Terraform Labs and the Luna Foundation Guard (LFG) have purchased 3.06 million AVAX in total.

The announcement came following an inquiry from members of the Avalanche Community about the details around the AVAX reserves held by Terraform Labs and the LFG.

The Terraform Labs’ AVAX purchase comes with a one-year lockup and the amount represents around 0.5% of last week’s AVAX volume.

While the LFG plans to use the AVAX for the Terra reserve pool and the purchased allocation represents around 0.9% of last week’s AVAX volume.

The Twitter announcement also added that the LFG has not shared any plans on using the AVAX as it is working on a Terra chain fork.

“Given the proposed Terra chain fork, LFG has disclosed no plans to use the AVAX.”

The Avalanche Foundation also added that should any sales be contemplated for the LFG reserves; it is ready to work with LFG “on a sensible trading strategy.”

According to Bloomberg, LFG, which supports public blockchain Terra, chose Avalanche Foundation in April to diversify and expand its stablecoin reserve by acquiring $100 million worth of AVAX from the Avalanche Foundation.

In the latest figure, the total reserve balance of the LFG remains over $232.7 million, and over 66% of the reserves are TerraUSD (UST), whereas AVAX takes nearly a quarter of its reserve, which takes around $58.83 million, trading at around $29.81.

Avalanche and Terra both are layer one blockchains, similar to Ethereum, where users can write codes and build different projects from non-fungible tokens to decentralized finance applications.

The Avalanche received $230 million in funding last September, pushing the price of AVAX to a record high of $68.89. However, subject to negative impacts from LUNA crashes, its price has dropped significantly.

Currently, AVAX was trading at $29.9 during the intraday, slightly up 1.53% on Friday in the Asia trading section.