Terra consists of the following parts:
LUNA Donation of governance:terra198f0gsgsstwuxjsk5zc9j66rqqmh5g48p9zuxz
①Luna: Terra’s local collateral, which is both collateral for the entire Terra economic network and PoS pledge token. Luna, of course, can also be used for Terra’s governance, including proposals and votes;
② Stablesoin family: Currently, the Terra stablesoin family consists of KRT (anchored with Korean won), UST(anchored with US dollar), MNT(anchored with Mongolian Tukrik), SDT (anchored with IMF SDR), and more stablesoin members will be added in the future. It seems to be perfect, but in the actual operation, it is not strictly implemented, but opportunistic. It can be concluded that UST is not well anchored with the US dollar.
③Chai Payment apps: Currently, more than 3% of Koreans use Chai to pay for goods and service fees, including Korea’s top online travel agencies, bookstores, game publishers, convenience stores, e-commerce sites, and more. Currently, it has over 2 million users, an annual operating cost of $1 billion, and an 80% retention rate. It’s a landing app, in other words, an app that uses cryptocurrencies like LUNA and UST to make purchases, often affecting the whole thing in a crisis;
④Anchor: Terra will soon release Anchor, which is a DeFi protocol that enhances staboin deposit returns through block rewards of PoS blockchain. Anchor aims to be “the gold standard for passive income in blockchain”; It will offer principal protection, instant withdrawals and a stable high annual interest rate; Such a design looks good, but to achieve a large amount of capital precipitation, without strong capital or a large enough platform, it is difficult!
In this way, LUNA is Terra’s platform token, which is used for the issuance of stabocoin UST, price stabilization mechanism, and network governance.
Users can exchange their LUNA tokens for stablecoin UST and vice versa. In this way, the price stability of stable currency UST is guaranteed. But that’s hard to do right now! Since LUNA’s price is unstable and full of volatility, how can it ensure the stability of stablecoin UST?
Luna is the mining coin of the Terra DPoS blockchain, and Terra is powered by Luna. Therefore, miners provide stability and security. On the exchange, the agreement provides a steady mining reward in all economic conditions, with transaction fees and seigniorage.
On the other hand, LUNA ranks high in the entire crypto market, ranking top 20 in the market value list, so LUNA’s sharp decline will have an impact on the entire currency circle, and even to some extent, bitcoin’s fall below 30,000 is related to its slump.
What is UST?
UST is a so-called algorithmic staboin that works with LUNA to maintain a $1 price using a set of on-chain minting and destruction mechanisms. In theory, these mechanisms work to ensure that traders can always swap $1 worth of UST for $1 worth of Luna, which has a floating price and is designed to act as a kind of shock absorber for UST prices.
The market value of UST currently ranks top 10 in the coin circle. As a mainstream currency, its current performance cannot be classified as a stable currency, but can only be classified as a general token.
The contradictory relationship between UST and LUNA
Luna’s price decline has pushed its market cap below UST. This could jeopardize the foundation of the entire stabilization mechanism of UST, as it means a Terra bank run could result in some users no longer being able to exchange $1 OF UST for $1 of LUNA.
This is very contradictory, because the quantity of UST because now is little bear market, so as a stable currency UST holdings is very large, and LUNA value than UST the market value of less than 50 $(dollar), in other words, more printed more than 50 billion dollars money, as the “gold standard”, according to the relationship with the gold of a certain proportion to issue currency, However, a large amount of money was actually printed. When all the money was converted into gold, there was not enough gold, which would lead to financial panic, and the crash of LUNA and UST this time triggered panic in the currency circle.
The Luna Foundation Guard (LFG) announced late Sunday that it will “lend” $1.5 billion of its vast bitcoin hoard to professional market makers to aggressively defend the UST dollar peg.
Monday’s event was “the biggest stress test the system has ever faced,” Jose Maria Macedo, a partner at Delphi Digital and an LFG board member who helps manage the group’s reserves, told CoinDesk. But he added that a reversal in UST-Luna’s market cap is not something to worry about because of LFG’s reserves.
Do Kwon, the outspoken CEO of Terra’s creator Terraform Labs, tweeted: “Deploy more capital – stable guys.”
Professional market makers are apparently using BTC reserves to defend the DOLLAR pegs of UST and agreements such as Curve, which allow people to exchange UST with other currencies such as the DOLLAR-backed USDC and Tether staboins.
Currently, there is no specific link between the LFG reserve and Terra’s on-chain minting and destruction mechanism. There has been a proposal to include Terra’s Bitcoin reserves in its underlying smart contracts, but currently users cannot directly convert UST or LUNA into bitcoin.
Whether this is likely to become even less clear as reserves look almost completely depleted.
Speaking on CoinDesk TV on Monday morning, Swan Bitcoin CEO Cory Klippsten called Terra a “confidence game,” in response to the enormous influence Terra’s founders and big money backers have had in actively working to help Bitcoin maintain its peg.
An estimated $1.4 billion worth of Bitcoin (BTC) was moved from wallets tied to Luna Foundation Guard (LFG), raising questions about its ultimate destination on the day bitcoin’s price plunged more than 11%.
Data from blockchain browser Blockchair showed on Monday that 42,530.82827771 BTC was spent in the LFG wallet, although its destination is unknown. The funds were supposedly split into two tranches – about 12,500 BTC and 30,000 BTC – with some reportedly sent to cryptocurrency exchange OKX.
Around the same time, the Twitter account Whale Alert revealed that 12,531 BTC had been moved from one unknown wallet to another. Whale Alert provides trackers and analytics and reports large Bitcoin transactions.
The move comes less than a day after LFG announced decisive steps to “actively defend the stability of the UST peg [and] the broader Terra economy,” referring to its popular algorithm-based stablesoin TerraUSD, which broke the peg to the US dollar. Measures include lending $750 million worth of BTC to otc firms to help protect the link to UST, and $750 million worth of UST to add more bitcoin holdings when market conditions begin to stabilize.
Comprehensive analysis of
This LUNA crash crisis shows that the practice of relying on BTC to issue stable currency for reserves is flawed in design, and the root of this is still a “credit crisis”, there is a real problem, can we ensure the smooth exchange between UST and BTC, such a phenomenon is not seen at present, playing in a small bear market. If cryptocurrencies like BTC and LUNA are unstable and volatile, there could be a ripple effect that could trigger a crisis.
On the other hand, it is clear that the mechanism for issuing staboins instead of anchoring the dollar is both complicated and difficult to operate.
Therefore, the LUNA crash event is estimated to be a short period of time will not end, the impact of the entire currency circle is still not underestimated