This Week in Crypto – The Fall of Terra (LUNA)

With hundreds of new cryptos constantly popping up, it's really hard to keep up with all the news and major updates. From 99.99% falls in price and 1000% gains, to updates about crypto regulations in different countries, find the most recent news, updates, gainers and losers, and more about the trending cryptos and prices on the market right now.

Trending coin of the week - Terra (LUNA)

All the way from $119 to $0.00002 in just less than a month. Terra (LUNA)'s price dropped 99% mostly due to the result of the depegging of the stablecoin UST which lost its peg and dropped to around $0.2. Let's have a look at what happened -

Here are 4 things that happened before this attack:

  1. The attackers shorted 100,000 BTC on Gemini
  2. They make a $1B UST deal OTC
  3. Luna Foundation Guard (LFG) bought BTC in the previous months as a defense mechanism to protect the peg
  4. The announcement of the switch from 3-pool to 4-pool
This Week in Crypto
Image Credit – Freepik | Digitalwallets.news

Let’s start with what happened to Anchor. Terra’s high-interest protocol, Anchor, began with a consistent market interest rate of 20%. However, it was no longer “stable” once Proposal 20 was passed in March. It was thereafter completely reliant on its reserves. The interests would rise by 10% if Anchor’s reserves grew by 10%. If Anchors’ reserves fell 10%, the interests would fall 10% as well.

As of Anchor’s history, there have always been more lenders than borrowers. However, due to the oversupply of lenders, the interest rate was predicted to decline 1.5 percent per month.

TerraUSD UST
Image Credit – coinmarketcap.com

Holders began to leave as interest rates were predicted to decline. The number one scenario for UST was to be deposited in Anchor, but even that was beginning to shift.

The majority of the people began leaving and now, they had two options, Terra’s burn-and-mint mechanism or Curve Finance.

The burn mechanism lets holders to exchange 1 UST for $1 worth of Luna, allowing for depeg arbitrage. People may buy cheap UST and sell it for $1 worth of LUNA or vice versa when UST goes below $1, generating a profit.

Curve, the second option, lets you exchange stablecoins. Arbitrageurs go to Curve when a stablecoin depegs and swap the discounted stablecoin for an alternative that keeps its peg.

If you sell UST for USDT on Curve, extra UST will be added to replace the USDT. To correct the path, the pool begins to discount UST in the hopes of attracting arbitrageurs to execute the opposite transaction and rebalance the pool. In the instance of UST, however, the contrary was not the case. Nobody wanted to keep UST because its sole purpose was to be deposited in Anchor, which had lately begun to falter.

Then comes the significant Curve sell-off. For dumping $85 million in UST on Curve, a single wallet sparked suspicions. Due to the $85 million trade, the 3-pool was slightly out of balance. To bring the Curve pool back into balance, 50,000 $ETH was sold and 20,000 $ETH was given to Binance.

Next, rumours about what’s going on are swiftly spreading on Twitter. This results in a huge number of withdrawals from Anchor Protocol, a lending market that rewards users who deposit UST with high interest rates. This appeared to start the de-pegging process. During the weekend, Anchor’s total UST deposits fell from $14 billion to $11.2 billion.

Anchor Deposits
Image Credit – anchorprotocol.com

The peg is now fluctuating between 0.987 and 0.995. This has led to accusations that the depeg was a coordinated attack within the Terra community. It’s common for stablecoins to fall into this range before swiftly rebounding back up, but the peg never fully recovered in this case.

As a result, LFG (Luna Foundation Guard) is withdrawing $150 million in UST from Curve’s 3-pool in preparation for the new 4-pool. The attacker now drains the Curve pool with $350 million in $UST purchased OTC. Curve currently has no liquidity.

With new suspicions spreading swiftly, anchor deposits are starting to plummet from $12 billion. The peg has been dropped to $0.97. Furthermore, the stock market has plummeted, causing BTC to fall in value, leading altcoin prices to fall, and LUNA to plummet to roughly $60. Luna currently has an ATL of $0.00002 at the time of writing.

They have $650 million remaining after spending only $350 million on the attackers. They begin selling this amount on Binance, resulting in a significant de-peg over the current one.

To try to restore the peg, the LFG is now selling BTC and buying UST. The attackers begin to dump UST, while the LFG begins to purchase UST (by selling huge amounts of BTC leading to a drop in its price due to high sell pressure). Note here that the attackers made a profit since they shorted 100,000 BTC on the Gemini market, and the price is currently falling. UST is now de-pegging even more.

Terra Luna
Image Credit – coinmarketcap.com

Anchor deposits begin to descend faster than previously, with tens of millions falling every minute. As the price of UST falls, all of the UST withdrawn is being moved to be sold. This puts new sell pressure on UST, causing it to de-peg even further. Because more UST is sold, there is more LUNA in circulation, lowering its price. The price of LUNA is suddenly plummeting.

Short sellers have begun to sell LUNA, further lowering its price. On FTX, they start shorting UST as well. As the price of UST and LUNA plummets, exchanges begin to prohibit UST withdrawals.

LFG eventually realises they can’t do much more and lets the peg drip. Do Kwon tweets that they’re about to announce a recovery plan at this time. Thousands of individuals have voiced their concerns with the proposal on Twitter. LUNA is currently trading at less than $30. The market reacted quickly to some minor details, as the plan did not appear to be solid enough to the public, and LUNA is now trading in the $10 level.

The whole rescue plan has yet to be released. Do Kwon organises a rescue plan the next morning. It wasn’t really a plan; it was just a talk, and the public were not happy. Do Kwon also implies that the algo-model will be dropped in favour of something else. LUNA’s price has now dropped to the $1 area and is still on the declining death spiral.

In addition, Binance has removed all LUNA and UST trading pairs. All of the exchanges are gradually delisting those pairs, and fear is setting in. UST dropped as low as $0.13 yesterday, and it’s now hovering around $0.2.

The Terra blockchain was likewise halted at block height 7603700, resumed, and then halted again at block height 7607789 during this time. Terra finally began block creation after several hours, with on-chain swaps disabled and IBC channels disabled. The wormhole bridge was temporarily offline, however it was shortly updated.

Do Kwon creates a thread in which he expresses his thoughts and provides a link to Terra’s Research Forum, where he typed down his “Revival Plan.” Terra’s community, he claims, must rebuild the chain, and validators should reset the network to 1 billion tokens, which would be distributed as follows:

  • LUNA holders before the depegging event
  • UST holders
  • Luna holders at the final moment of the chain halt
  • Community Pool

400M (40%) to LUNA holders before the depegging event. The new chain should be community owned. Preserving decent ownership of the network in its strongest believers and builders is important.

400M (40%) to UST holders proportional to the time of the new network upgrade.

100M (10%) to Luna holders at the final moment of the chain halt – last minute marginal Luna buyers should be compensated for their role in attempting to provide stability for the network.

100M (10%) to the Community Pool to fund future development.

After this proposal, LUNA finally sees some uptrend (from $0.00001 to $0.0005 at the time of writing) whereas UST remains the same.

You might wonder how this attack could be avoided. If the 4-pool had already been operational, clearing would have been far more difficult, as the 4-pool alone would have cost $3 billion instead of the present $350 million. As of who is behind all this, massive rumors about Blackrock and Citadel are spreading.

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General

Gucci to accept payments in cryptocurrencies

Italian luxury brand Gucci will start accepting payments in cryptocurrencies in some of its stores in America. Customers will be able to pay using a number of cryptocurrencies, including Bitcoin, Ethereum and Litecoin. In-store crypto payments will be made with a link sent via email to the customer; the link contains a QR code that allows them to execute the payment from their crypto wallet.

Report shows 90% of Central Banks are considering CBDCs

Ninety percent of central banks polled by the Bank for International Settlements are considering launching a digital currency of their own (CBDC). The Bank for International Settlements (BIS) polled 81 central banks, finding that 60% are working on proof-of-concept projects and 26% are conducting pilots.

Ethereum (ETH) TVL Sinks More Than $50 Billion in 2022 Low

Due to dwindling investor interest in decentralized finance and the whole crypto finance sector, Ethereum TVL declined precipitously in the second week of May. On that day, Ethereum’s TVL was over $146.77 billion, and on May 10, 2022, it was around $93.9 billion.

FTX CEO Sam Bankman-Fried purchases a 7.6% stake in Robinhood Markets, sending the stock soaring

According to a filing with the US Securities and Exchange Commission today, Sam Bankman-Fried, the CEO of crypto exchange FTX, has purchased a 7.6% holding in stock and crypto trading software Robinhood. After word of his involvement circulated, Robinhoos stock jumped 33%. According to Bankman-Fried, he invested because it was an “attractive investment.”

Metaverse

NASA partners with Epic Games to to build a Martian Metaverse simulation

NASA, the United States space agency, has teamed up with Epic Games, the developers of Fortnite, to offer a contest for developers to help create a Martian metaverse experience. The mission is attempting to entice developers to produce a virtual reality experience that will assist in research and environmental preparations for problems that could arise on Mars.

Meta Planning Cutbacks for Metaverse Department Reality Labs

According to new claims, Meta is proposing cuts to its Reality Labs branch. The cuts will not result in layoffs; instead, certain projects will be halted and others will be delayed. Reality Labs lost $10.2 billion in 2021 and another $3 billion in Q1, according to Reuters.

NFTs

CryptoPunks reaches $2 Billion in all-time sales

Ranked as the second highest selling NFT after Axie Infinity, CryptoPunks crossed $2 Billion in all time sales despite a sinking NFT market. This latest milestone put them above all the successful NFT projects but just below Axie Infinity which was $2B ahead. Meanwhile, the total transactions increased 187% in March, reaching around 1,400. Also, it left CryptoPunks with a sales volume of $98.5 million compared to January’s $6.1 million.

Instagram to support NFTs from Ethereum, Solana and others

NFT integrations for Ethereum, Polygon, Solana, and Flow are in the works at Meta’s social media giant. Instagram plans to enable popular crypto wallets like MetaMask. This integration is anticipated to improve NFT adoption by increasing the number of individuals who have access to the technology. Twitter is now the only social media network with fully integrated NFTs.

Mining

US Chipmaker Nvidia fined $5.5 Million over crypto mining

According to the SEC, Nvidia had deceived its investors by citing massive revenue increases from “gaming.” The truth was that bitcoin miners’ demand for its graphics cards had resulted in a huge increase in company income. They agreed to pay $5.5 million to investors for failing to fully warn them about the demand for its graphics cards from bitcoin miners.

Ethereum miner revenue surpassed Bitcoin by $224 Million in April

During the month of April, Bitcoin miners took a back seat in terms of mining profitability, with Ethereum miners earning $224 million more than Bitcoin miners. In April, Bitcoin miners brought in $1.16 billion, while Ethereum miners brought in $1.39 billion. In contrast to Bitcoin, Ethereum income climbed by 3% in March.

Bitcoin Mining Difficulty Reaches All-Time High as Market Drops

According to new statistics, bitcoin mining difficulty has reached an all-time high as the asset’s price falls to a one-year low. According to data from BTC.com, it has just set an all-time high of 31.25 trillion hashes. This difficulty appeared in block 735840. The growth of 4.89 percent was the third greatest this year. This occurred because the difficulty of the network grows as the number of miners increases.

Regulations

Georgia to unveil new cryptocurrency law by this fall

Authorities in Georgia are now holding discussions with industry representatives to finalise a bill designed to regulate coin trading, among other crypto-related activities. Papuna Lezhava stated “We are working on a bill regulating cryptocurrency, and now it is at the stage of consideration with market participants. The final document will be made public either in the summer or in the fall.”

Argentina's Central Bank decides to ban unregulated crypto transactions in traditional banks

The central bank of Argentina has decided to prohibit uncontrolled cryptocurrency transactions in regular banks in order to reduce the hazards connected with digital assets. Argentina’s reputation as a crypto-friendly country has shifted after the International Monetary Fund (IMF) reportedly exerted pressure on politicians.

Leaked Document Shows South Korea Preparing Crypto Regulations by 2024

According to a leaked document, the South Korean government plans to develop a crypto framework in 2023, with implementation expected in 2024. The framework’s details are limited, but it focuses on investor protection. The law is one of the 110 policy goals announced by the incoming president earlier this year. A central bank digital currency (CBDC) is also under consideration. In January 2022, the Bank of Korea completed the first part of its simulated testing.

Bitcoin and Ethereum Trading Gets Green Light on Brazil’s Largest Digital Bank

Customers will soon be able to purchase Bitcoin and Ethereum through Nubank, Brazil’s largest digital bank. Even more cryptocurrencies may be included in the future, according to the bank. The platform will provide easy access to Bitcoin and Ethereum to 50 million Brazilians. Nubank’s entry into the crypto space is a smart move that will help to boost adoption in the area.

Geo-based updates

U.S. sanctions Bitcoin mixer blender for helping launder $20.5M to North Korea

Blender, a crypto mixer, was sanctioned by the US for assisting North Korean hackers in laundering funds from the Axie Infinity breach. The treasury has added four wallet addresses related to the Lazarus Group to its list of sanctioned companies. Blender was accused of assisting the Lazarus Gang, a sanctioned North Korean cyberhacking group, in carrying out the world’s largest digital money robbery in March.

Property in Portugal sells for 3 bitcoins without conversion to euros in crypto only sale

An apartment in Braga, Portugal, was sold entirely in Bitcoin, with no conversion to euros. This is the first time in Portugal that a real estate deal has accepted direct cryptocurrency payments. According to sources, the flat was sold for 3 BTC on May 5th. The value of 3 BTC at the time of the sale was roughly somewhere around Euro 110,000.

Utah to create blockchain and digital innovation task force; governor signs bill

Utah Governor Spenser Cox has signed a measure that would allow the state to establish a blockchain and digital innovation taskforce. The task group would be tasked with advising the government on blockchain-related policies. The task force must present its findings to the Utah Senate’s Legislative Management Committee and the Business and Labor Interim Committee by November 30 each year.

El Salvador buys the dip adding another 500 BTC to the state coffers

El Salvador increased its bitcoin (BTC) holdings by 500 coins after the price fell below $31,000 yesterday. Bukele intends to issue $1 billion in bitcoin bonds to help finance the development of Bitcoin City in the country. According to Bukele, everyone who spends three bitcoin or more is eligible for residence. At the same time, because bitcoin is treated as legal cash rather than an investment instrument, foreigners who benefit from their holdings are not subject to capital gains tax.

Suspect Arrested in Hong Kong for Scamming Crypto Trader out of HK$1.5M

Hong Kong police detained a 24-year-old man on Tuesday for allegedly stealing cash from a Hong Kong citizen, an offense that carries a maximum sentence of 10 years in jail. The victim and two colleagues were reportedly enticed into a conference room of a store in Tsim Sha Tsui, where the victim deposited $HK1.5 million (US$191,085) into an e-wallet.

Australia's first three crypto ETFs debuted on the Cboe Global Markets with the first half day's trading somewhat muted due to market conditions

Cboe Global Markets has launched Australia’s first three crypto ETFs. Three funds were scheduled to debut in late April, however the launch was postponed indefinitely due to last-minute brokerage issues. The market capitalisation of the three ETFs was almost equal after the first half of the day, ranging from $AU 400,000 ($US 276,000) to $AU 470,000 ($US 324,000).

This Week’s Gainers and Losers

Gainers

#
COIN
PRICE
CHANGE
3789
Goldario
$0.2215
 478.74%
3136
DELOT.IO
$0.002294
 246.31%
1975
SWIRGE
$0.02232
 229.42%
3518
LoopSwap
$0.001146
 177.29%
3764
Luna Inu
$0.000367
 149.94%

Losers

#
COIN
PRICE
CHANGE
206
Terra
$0.0004128
 100.00%
3321
Kujira
$0.006874
   99.13%
1910
StarTerra
$0.009661
   99.09%
2876
Shibnobi
$0.0…01197
   98.54%
4130
Apollo DAO
$0.000367
   97.12%

Disclaimer: The above article has been researched with social media, news and reports. Before relying on our content, conduct your own research, examine, analyse, and verify it. Use or rely on our content at your own risk and judgement. No part of our website is intended to be a solicitation. We are not affiliated with any of the websites, crypto projects, or coins mentioned in this article or post. Digital Wallets News does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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