Crypto Research

Terra-UST Saga – How to repair the trust when there is no trust built on

Life is with surprises ?. For one month, you can be on the moonshot ?? and for another month, you are bankrupt completely ?❤️‍?. 

Some may say this is the nature of the crypto space, but it does not have to be this way ?! 

In the past, when crypto projects cratered, the community dissolved, and creators abandoned the project entirely ?. 

This time is different, the crypto market has matured, and founders are encouraged to reveal true identities.

Terra-UST Saga

However, there is no exit plan and crisis management in the crypto space to protect the community if the crypto is genuinely community-centric.

From moonshot potential ? to lunatic?, here is how Terra goes from the Defi future into shitcoin: 

⏳ History of Terra

After the payment technology boomed, Terra was created with a vision of the mass adoption of cryptocurrencies that could provide a price-stable against the world’s major fiat currencies

Terra operates under a consensus mechanism of delegated Proof of Stake with 100 validator candidates.

The initial insurance of native token Luna is 1 billion, and allocations to Terraform Labs (10%), Employees & Contributor Pool (20%), Terra Alliance (20%), Stability Reserves (20%), Genesis liquidity (4%), and investors (26%).

Terra had its moment from $180M at the start of 2021 to $15B in March 2022, with its native token LUNA hit by 138 times ?!   

Luna Foundation acquired an additional $1.5B on May 5th, 2022.

Everything looks so promising!

Founder of Terra predicted that 95% of coins would be whipped out, and it was entertaining him to watch the burn ?. 

? Collapsed the pricing

History of Terra
Luna crashed

Just only within the week, Luna crashed from $80 to near $0, and its stablecoin UST hit from $1 to around $0.13. 

Terra played what the Fed played. Since its native token was a collateral asset to maintain UST’s dollar peg, they can burn Luna and mint UST or vice versa to control the price. And they did supply more Luna to prevent the free fall of UST.

Luna and mint UST
Image credit: https://cointelegraph.com/news/luna-drops-20-in-a-day-as-whale-dumps-terra-s-ust-stablecoin-selloff-risks-ahead

Investors just didn’t buy it anymore.

Massive BTC was removed from Luna Foundation Guard (LFG) on May 9th. 

An explanation from the founder of the coordinated attack against the protocol.

https://twitter.com/stablekwon/status/1523532474860539905

With a very short period of notice of the vote, the foundation made an announcement.

It did not stop the bleeding.

UST was burned to $1.4B and still could not prevent them from falling.

Major crypto exchanges start delisting Terra.

And Terra blockchain was halted.

? What went wrong?

Here are my thoughts about Terra doom day:

1️⃣ Fail concept of stablecoin

If you cannot provide an accurate 1:1 peg, you may as well become a self-feeding warm. 

Unlike the Fed, which could print more money through the debt services – the Treasury can provide influential players to buy up debts. 

Compared to the government, community members provide their hard-earned money.

Crypto companies were only supported by communities whose beliefs on the project.

Stablecoin is a debt without obligation to the community.  

2️⃣ CEO of the Terra

https://twitter.com/stablekwon/status/1524331171189956609

Terra was claimed to be decentralized until it was not. The powerful CEO was representing the community.

3️⃣ Promotion materials

Too many promoters blindly upvote the project that may not be fully understood.

4️⃣ Not crisis mode management

There is no proper exit plan when the project fails, and the community that was built would likely be left behind.

5️⃣ Centralized rescue plan

Reshifle and redistribute tokens will not work if you lose community support and their trust.

6️⃣ One failed project to bring down the entire market

UST is a so-called algorithmic stablecoin, meaning that assets like cash or cash equivalents do not back it. Instead, it relies on trading and treasury management to maintain its value. 

Fake liquidity may not support its own massive valuation.

? What is the next?

Terra blockchain was halted and restarted and halted and restarted again.

The founder received several death threats toward himself and his family members.

We do not know if the revival plan will work in the future. 

So, how do you keep something stable?

? Follow me here

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