After the “earthquake-scale” shock wave of the mad slump in the stablecoin UST and its sister token Luna last week, the crypto market gradually returned to calm this week. However, Terra, the cryptocurrency company that manages UST, is still struggling with the post-slump chaos.
Firms Dump Bitcoin After Stablecoin Slump
Last week, TerraUSD (UST), the third-largest stablecoin in the cryptocurrency market, suffered an unexpected thunderstorm. The value of this stablecoin, which was supposed to be 1:1 “stably pegged” to the U.S. dollar, plummeted to 9 cents by the time of writing. Meanwhile, Luna, a sister token used to absorb the price shock of UST, has almost completely evaporated in value, and is worth less than 1 cent as of press time. Just a month ago, on April 5, the value of Luna reached a high of $119.5.
UST is an algorithm-driven stablecoin. Unlike USDT, the world’s largest stablecoin that can rely on U.S. Treasury bonds to reserve stable currency values, Terra only has Bitcoin and other tokens as reserves. Terra’s founder, Do Kwon, has promised to use bitcoin to stabilize the value of UST if the value of UST drops significantly.
Terra has sold more than $3 billion worth of bitcoin since last week in order to restore UST’s peg to the U.S. dollar. However, the current value of UST is still only 9 cents, which means that Terra’s efforts have failed completely.
The Luna Foundation Guard, founded by Terra founder Do Kwon, tweeted on Monday that it had spent almost all of its bitcoin reserves last week in an effort to save the UST.
The company previously revealed that as of May 7, the fund held more than 80,000 bitcoins, worth nearly $3 billion, in reserves, along with other tokens, including BNB, tether, USDC, and avalanche. In the latest tweet published on Monday, only 313 bitcoins, worth about $9.3 million, remain in the Luna Foundation Guard’s reserves.
In a series of tweets, the Luna Foundation Guard said that as UST fell below its original $1 peg, the company transferred 52,189 bitcoins “to trade with counterparties” and sold an additional 33,206 bitcoins directly.
Tracking analysis by analytics firm Elliptic showed that Terra’s 52,189 bitcoins were moved to an account on the crypto exchange Gemini, and another 28,205 bitcoins were moved to another exchange, Binance, while the flow of funds outside these wallets could not be traced.
$42 Billion Evaporated Out of Thin Air
Independent economist Frances Coppola said: “When you’re dealing with partially secured stablecoins like UST, a big problem is that your hard collateral — in this case bitcoin — Will be more valuable to [investors] than your governance token.”
Analyst firm Elliptic estimates that investors in the two cryptocurrencies lost a combined $42 billion over the past week as UST and luna tumbled.
This disaster has affected the entire cryptocurrency market. Last Thursday, the entire cryptocurrency market fell sharply. Bitcoin once fell below $26,000, the lowest level since December 2020. The single-day loss of the cryptocurrency market on that day exceeded $200 billion. .
However, after the shock of this storm, the price of Bitcoin has slowly recovered. As of press time, the price of Bitcoin is about $29,600.
As of Monday, Terra said it would use the remainder of its $85 million in crypto assets — including some BNB and avalanche — to “compensate the remaining users of UST,” with small holders first, and specific distributions The way is “still under discussion”.
But Terra’s troubles obviously don’t stop there. After Luna and UST plummeted, the Korea Financial Services Commission and the Financial Supervisory Authority have begun to conduct emergency movement checks on the LUNA incident and accelerated the formulation of relevant laws such as the Basic Law on Digital Assets.
In addition, the South Korean National Assembly has also pushed for a hearing on the Luna incident, considering the presence of crypto exchange executives and Do Kwon. This means that Terra may face legal liability in the future after suffering huge financial losses.