😱 Luna Foundation Guard Spent $3B In Unsuccessful Bid To Defend UST Peg
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UST Depegged Despite LFG Liquidating Billions
By Jason Levin
NEWS On May 7, the Luna Foundation Guard (LFG), the reserve fund for the Terra ecosystem, controlled over $3.1B in assets. Today, it holds just $87M.
FALLOUT Over the last week and a half, the Terra ecosystem collapsed after the TerraUSD (UST) stablecoin lost parity with the U.S. dollar. The LFG reportedly spent $3B to defend the UST peg but UST still collapsed and now sits at $0.11.
According to a Twitter thread posted by LFG, it looks like it allowed select counterparties to swap out their UST for USDT, USDC, and Bitcoin from LFG’s treasury. In one swap on May 8, LFG sold 26,281,671 USDT and 23,555,590 USDC for an aggregate 50,200,071 UST.
These swaps have raised questions from the crypto community. Patrick McKenzie from Stripe called it “shocking” that “the market stabilization fund let insiders cash out to Bitcoin near par.” DCinvestor, an Ethereum influencer with 200,000 followers, speculated that LFG was created to acquire Bitcoin and give the team an “exit parachute,” not to save the peg.
U.K Moves Forward With Plan To Become Global Hub For Digital Assets
Stablecoins haven’t looked so stable recently. The United Kingdom doesn’t seem to be too worried.
Despite the recent collapse of Terra’s UST stablecoin, the U.K. government will move forward with proposed regulations that would facilitate stablecoins’ use “as a recognised form of payment,” according to a report from The Telegraph.
“Legislation to regulate stablecoins, where used as a means of payment, will be part of the Financial Services and Markets Bill which was announced in the Queen’s Speech,” a spokesman for Her Majesty’s Treasury told the U.K.-based newspaper.
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UST Fallout Spreads
By Jason Levin
Terra’s UST collapse has shattered the foundations of the algorithmic stablecoin market.
After the collapse of Terra, algorithmic stablecoins have been experiencing jitters across the market – a sign that investors are losing confidence that this model of creating stable cryptocurrency can be sustainable in the long term.
Vai (VAI) fell from its peg down to as low as $0.87 on May 10, Fei USD (FEI) dropped to $0.97 on May 11, and Neutrino USD (USDN) fell to $0.70 on the morning of May 12. While FEI is now hovering around its peg, VAI and USDN are now sitting at $0.93 and $0.95 respectively.
A Plan to Resurrect Terra
By Owen Fernau
The Terra ecosystem’s notorious leader is trying to salvage the resources and talent left behind in the wreckage that is UST’s depegging.
Do Kwon, the maligned founder and CEO of TerraForm Labs, has posted a plan to fork the Terra blockchain and distribute 1B of a new token to stakeholders in the Terra ecosystem. Kwon proposes salvaging Terra’s developer ecosystem, users and recognizable brand by launching a new Layer 1 blockchain, while putting the idea of creating a decentralized stablecoin on hold for the time being.
“While a decentralized economy does need decentralized money, UST has lost too much trust with its users to play the role,” Kwon wrote. “So what remains? While UST has been the central narrative of Terra’s growth story over the last year, the Terra ecosystem and its community is what is worth preserving.”
Following China's crackdown on bitcoin mining last year, a large number of miners were seemingly plugged back into the network by September 2021, according to the most recent data from the Cambridge Centre for Alternative Finance (CCAF). In fact, China still had the second-largest share of the network's hash rate share (21.11%), following the United States (27.69%).
Digital-asset funds last week netted their highest inflows since late 2021 as investors bought into market panic caused by Terra's implosion. Some $274 million flowed into digital asset funds as investors bought the dip, amid a broad crypto-market sell-off triggered by Terra's turmoil.
The Brazilian stock exchange known as B3 (Brasil, Bolsa, Balcão) will begin trading futures contracts for bitcoin within the next three to six months, according to a report from Valor. "We plan to launch bitcoin futures in the next three to six months," CFO André Milanez reportedly said on a conference call.
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Trader May Have Lost $9M in Exit from USDT Opportunistic bots may have made off with millions of dollars worth of profits after one trader hastily tried to exit an enormous USDT position. On May 12, Twitter user gzeon flagged that one USDT holder on the Arbitrum network appeared to have incurred a $9.4M loss after hastily trying to convert $15.5M USDT for USDC via Curve’s deployment on the Arbitrum blockchain
Terra Network Restarts After Second Shutdown; Binance Delists LUNA and UST Pairs The Terra blockchain shut down for a second time on May 13 after its validators, users who tend its blockchain, pulled the plug. Meanwhile, the collapse of Terra’s ecosystem has prompted several leading centralized exchanges to delist LUNA and UST pairs, including Binance, Bybit, and BitMEX.
Lido Increases Liquidity Incentives as stETH Trades at Discount to ETH UST’s collapse continues to reverberate around crypto markets. Curve’s largest pool is out of whack — the stETH pool, which pairs ETH with stETH, a staking derivative of ETH, shows stETH trading at a 4.7% discount to ETH. Normally the two assets trade on nearly a one-to-one basis.
🧑💻 ✍️ Stories in The Defiant are written by Owen Fernau, Samuel Haig, Jason Levin, DeFiDad, and yyctrader, and edited by Edward Robinson, yyctrader, and Camila Russo. Videos are produced by Robin Schmidt, Alp Gasimov and Daniel Flynn. Podcast is led by Camila, edited by Alp.
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