Where were you during the Cryptogeddon of 2022?
Is the reign of Terra / Luna over?
Welcome back to cryptoland and its been a wild, wild last week.
My first question: where were you during the Cryptogeddon of 2022?
In case you were asleep or too focussed on the Johnny-Amber court videos, I am here to tell you about the Cryptogeddon of 2022.
Thee was the Otherside drop, people raving over Mega Kodas, then the 3 and 4 digit ENS, and of course the Elon-Twitter episode that never seems to end.
But frankly, nothing will beat the demise of Terra / Luna and how it literally fell from the sky in shambles.
This will probably go down in history so buckle up.
I pray that none of you are embroiled in it but it still behooves you to know a little of what is going on.
So what happened?
TerraUSD (UST) is a stablecoin pegged to USD, but not backed by USD.
There is a difference.
A stablecoin is essentially a digital cryptocurrency that is always equals to $1 USD.
It makes transferring funds and certain kinds of transactions much safer, easier when you know that the value of that cryptocurrency is always going to be a fixed, stable value.
At its peak, UST was worth $18B and was the top 5 largest stablecoins in the world.
Allegedly, some say there was a coordinated “attack” on UST to try “break the peg”.
Whether that is true, we leave it to the on-chain sleuths and internet CSIs to tell us in time, but for now, it worked.
UST was depegged and its value plummeted.
Luna is a sister token that is used to balance and maintain the peg of UST.
The exact tokenomics is a little more complicated but just know that Luna exists to ensure UST is always pegged to $1.
The famous words of Jon Wu:
“In other words, UST is stabilized by:
The gigantic gravity well created by the size of Do Kwon’s nuts.”
Do Kwon, Founder of Terra / Luna
When the “attack” happened, it triggered a cascade of people losing confidence in UST and they started selling frantically after watching UST dip below $1.
Even more people withdrew from Anchor Protocol, which was giving an absurd 20% interest rate.
Fear spreads faster than the speed of light.
More than 50% of all funds in Anchor exited in 48 hours.
To bring UST back up to $1, they had to burn UST for Luna and sell it on the open market.
What happens when there is a sudden and massive spike in supply while demand stays the same?
The price of Luna goes down down down, real quick.
Luna lost 99.9% of its value in a single week.
In some exchanges, Luna was priced with so many zeros, they just regarded it as “$0.00”.
So in just a few days, the ecosystem of UST and Luna has been decimated.
The UST stablecoin isn’t worth a dollar anymore ($0.28) and Luna is now at $0.00029.
I will rift more on this, some conspiracies swirling, what can we learn and what’s next for Crypto in the next few posts.
Were you affected by the recent UST/Luna crash?
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