📉UST -92%! How $11.5B became a $1.4B?
Updated
Algorithmic stablecoin UST dropped by 92% and there are still different rumors: the network collapsed on its own or was deliberately destroyed to buy back all the Bitcoins from the Terra Foundation. As we know, about 80,000 BTC were used to secure this stabelcoin. Many holders of UST, just stablecoin(!), have lost about 10B.
📊In order to understand how it all happened, it is necessary to understand the mechanism of algorithmic stablecoins.
🎯Types of Stablecoins. In the picture you can see different types of stablecoins:
🔶 USDT, USDC - secured in fiat currency, government bonds.
🔶 DAl - secured by pledge of Ethereum in smart contracts. If you know that Ethereum will grow in value and you do not want to spend it, you pledge your Ethereum, and in return you get more DAI (dollars) for the trading or investing.
🔶 UST is an algo stablecoin, which has a price peg to the main cryptocurrency and USD. In the case of UST it was Luna. Luna was the security of the UST stablecoin and you could exchange 1 UST and the equivalent of Luna. If Luna was worth $100, you could get 100 UST in exchange, and for 1 UST you could get 0.01 Luna. There was also a huge supply of Bitcoin on the security of UST.
✅What is the advantage of algorithmic Stablecoin? The advantage of this approach is that there is no need to hold additional funds for security. If a bank issued securities in order to borrow money, it has the funds to security that debt, and also earns additional profit on the money it borrowed. For algorithmic stablecoins, the security was an altcoin. If Luna goes down in value, the guarantee that you can exchange USTs for dollars goes down also. If the bank goes bankrupt, you get your money back, if the altcoin drops....you know what happened next.
💼Algorithmic stablecoins are also called unsecured stablcoins. Luna had a security in BTC, but as it turned out later, not enough.
Why is the peg broken? Let's not go into all the details, I'll tell you a simple algorithm:
1️⃣ The big amount🐳 of UST was exchanged for Luna.
2️⃣ They have sold big amount of Luna by market.
3️⃣ Luna dropped by 50% and its capitalization became insufficient to secure UST.
4️⃣ Panic selling by retail investors continued.
5️⃣ Terra Fundation, in an attempt to stabilize the stablecoin`s peg to the dollar, sold all their Bitcoin holdings.
6️⃣ Luna is down by 99.9998% and UST is down by 92% with no BTC on their wallets.
What are the reasons of this dump? A week ago I did an article about Terra being a top 3 holder of Bitcoin and have about 80,000 Bitcoins. If you've been in trading for a long time, you should understand that the whales have liquidity issues and may have done a manipulation of the price of Luna to make Terra sell all their Bitcoins to save the stabelcoin peg.
🚩If you are a newbie, liquidity is a measure of the speed or availability at which a trader can buy or sell a cryptocurrency. You don't need much liquidity to buy 1 Bitcoin, but to make a $2-3 billion purchase, you need someone to sell $2-3 billion worth of Bitcoins. Such manipulations happen very often at the crypto market, as it happened with Luna and UST. When Bitcoin falls by 30%, more than 22B of long traderss are liquidated, all this liquidity is bought by big players, because they don't have such amount of liquidity for buying at other time.
🏁Are you still have a questions? What other reasons could there be for the Luna and UST dump? Write your ideas in the comments!
💻Friends, press the "like"👍 button, write comments and share with your friends - it will be the best THANK YOU.
P.S. Personally, I open an entry if the price shows it according to my strategy.
Always do your analysis before making a trade.
📊In order to understand how it all happened, it is necessary to understand the mechanism of algorithmic stablecoins.
🎯Types of Stablecoins. In the picture you can see different types of stablecoins:
🔶 USDT, USDC - secured in fiat currency, government bonds.
🔶 DAl - secured by pledge of Ethereum in smart contracts. If you know that Ethereum will grow in value and you do not want to spend it, you pledge your Ethereum, and in return you get more DAI (dollars) for the trading or investing.
🔶 UST is an algo stablecoin, which has a price peg to the main cryptocurrency and USD. In the case of UST it was Luna. Luna was the security of the UST stablecoin and you could exchange 1 UST and the equivalent of Luna. If Luna was worth $100, you could get 100 UST in exchange, and for 1 UST you could get 0.01 Luna. There was also a huge supply of Bitcoin on the security of UST.
✅What is the advantage of algorithmic Stablecoin? The advantage of this approach is that there is no need to hold additional funds for security. If a bank issued securities in order to borrow money, it has the funds to security that debt, and also earns additional profit on the money it borrowed. For algorithmic stablecoins, the security was an altcoin. If Luna goes down in value, the guarantee that you can exchange USTs for dollars goes down also. If the bank goes bankrupt, you get your money back, if the altcoin drops....you know what happened next.
💼Algorithmic stablecoins are also called unsecured stablcoins. Luna had a security in BTC, but as it turned out later, not enough.
Why is the peg broken? Let's not go into all the details, I'll tell you a simple algorithm:
1️⃣ The big amount🐳 of UST was exchanged for Luna.
2️⃣ They have sold big amount of Luna by market.
3️⃣ Luna dropped by 50% and its capitalization became insufficient to secure UST.
4️⃣ Panic selling by retail investors continued.
5️⃣ Terra Fundation, in an attempt to stabilize the stablecoin`s peg to the dollar, sold all their Bitcoin holdings.
6️⃣ Luna is down by 99.9998% and UST is down by 92% with no BTC on their wallets.
What are the reasons of this dump? A week ago I did an article about Terra being a top 3 holder of Bitcoin and have about 80,000 Bitcoins. If you've been in trading for a long time, you should understand that the whales have liquidity issues and may have done a manipulation of the price of Luna to make Terra sell all their Bitcoins to save the stabelcoin peg.
🚩If you are a newbie, liquidity is a measure of the speed or availability at which a trader can buy or sell a cryptocurrency. You don't need much liquidity to buy 1 Bitcoin, but to make a $2-3 billion purchase, you need someone to sell $2-3 billion worth of Bitcoins. Such manipulations happen very often at the crypto market, as it happened with Luna and UST. When Bitcoin falls by 30%, more than 22B of long traderss are liquidated, all this liquidity is bought by big players, because they don't have such amount of liquidity for buying at other time.
🏁Are you still have a questions? What other reasons could there be for the Luna and UST dump? Write your ideas in the comments!
💻Friends, press the "like"👍 button, write comments and share with your friends - it will be the best THANK YOU.
P.S. Personally, I open an entry if the price shows it according to my strategy.
Always do your analysis before making a trade.
Note
Note
Get access to the private club with VIP signals
👉 bit.ly/vip_bikotrading
🔷Telegram 👉 t.me/+ICrmLIneDmRiYjIy
🔷YouTube 👉 bit.ly/YouTube__Lessons
👉 bit.ly/vip_bikotrading
🔷Telegram 👉 t.me/+ICrmLIneDmRiYjIy
🔷YouTube 👉 bit.ly/YouTube__Lessons
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.