There is blood in the Streets
- 🩸 There is blood in the streets
- 🤔 To simplify
- 😟 What’s Next?
- 👀 Under the Radar
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🩸 There is blood in the streets
The terra protocol decided to officially halt its blockchain on the morning of Thursday, May 12th. This means no new blocks are being generated on the blockchain network after its block height of 7603700, and holders can’t move their Terra assets until the blockchain is unfrozen.
The Terra blockchain was officially halted at a block height of 7603700. lcd.terra.dev/blocks/latestTerra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.
This painful disaster can be complicated to fully understand and the deeper you go, the deeper it gets.
🤔 To simplify:
A massive sell-off on Curve by a well-orchestrated attacker started this fiasco. The first imbalance was triggered by a swap of $85 million from UST to USDC. To put the Curve back into balance ETH was sold and BTC was moved to Binance. Back in March, the LFG (Luna Foundation Guard) started buying BTC to defend the Terra UST peg, but this strategy became part of their demise.
The attacker then was able to buy more UST and started draining the curve pool leaving it with no liquidity. This dropped the UST peg to $0.97 creating panic worldwide. With the price of altcoins and Bitcoin also falling, many investors started taking their money out of UST making it drop even faster.
The LFG then started selling BTC (at a loss) with the hopes of pegging UST back to $1. This made the price of BTC drop even more.
Selling pressure from everyone trying to save what they had left, created fear in the Terra Luna protocol and people started dumping luna, which collapsed as well.
After several attempts to re-peg UST, Do Kwon realized that this race was not to be won this way and decided to officially halt the Luna Protocol blockchain.
😟 What’s Next?
After losing more than $10 Billion in a single day, Luna has started to get delisted from exchanges. To make matters worse, the blockchain was halted which is killing whatever confidence was left.
We are witnessing history and just saw the first blockchain protocol go from zero to billions and back to ZERO. Also, the faith in algorithmic stablecoins is dwindling. Compared to first-generation stablecoins like Tether and Circle that maintain their value via assets in the bank. Every time someone purchases 1 USDT or USDC for a dollar, Tether or Circle takes that dollar and stores it so that holders can always redeem what they have. “Algo” coins maintain a peg to the U.S. dollar via its relationship to another crypto asset. In Terra’s case, to mint 100 UST, you must burn (or take out of circulation) $100 worth of LUNA, which has a floating value. To mint $100 worth of LUNA, you must destroy 100 UST.
Other Algo Coins are starting to show signs of weakness as well. NEURINO has been dropping to $0.98 and fro. Many proponents of stablecoins suggest that stablecoins don’t fail because they’re algorithmic — they fail because there’s not enough backing them.
As of today, DAI is looking like the king of the jungle with its overcollateralized strategy.
Basically Do Kwon, if able, will copy DAIs strategy.
Meanwhile, The Fiat landlords have not wasted any time and have been very vocal about this crypto disaster. Ms. Janet Yellen, serving as the 78th United States secretary of the treasury since January 26, 2021, said earlier this week that stablecoins must be regulated as soon as possible. But she also shared this:
“Although I can’t say that they’ve reached the scale right now where they’re a financial stability concern, we’re seeing Terra having broken the buck and Tether under some pressure as well…I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kinds of risks that we have known for centuries in connection with bank runs.” Janet Yellen.
The drama continues. Inflation came out above 8%, there is a sell-off in the stock market, the crypto market has not hit bottom yet, and the Federal Reserve will increase interest rates even further.
Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family, is credited with saying that “the time to buy is when there’s blood in the streets.”
There is definitely a lot of blood out there, but we are not in the 19th century anymore, the economy is more complicated and intertwined than ever before and crypto was not a $2 trillion market. Regardless, there will be many different opportunities for developers to build better and stronger financial decentralized protocols and to invest in amazing technologies at very attractive valuations.
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👀 Under the Radar
Today this section highlights news and coins which may affect us due to the market sell-off and the Terra disaster. Let’s keep an eye on these:
- Tether — The OG stablecoin has lost its peg to the dollar, but it was able to recover.
- An act to follow — Crypto in Germany remains exempt from capital gains taxes if you hold it for more than a year. Furthermore, income from staking and lending BTC and ETH is also tax-free after one year and does not trigger a ten-year extension. The ministry of finance said more clarifications are already in the works.
- Coinbase — Will Keep Customer Balances in Event of Bankruptcy
- Who was behind the Terra attack? — BlackRock And Citadel Deny Trading Cratering Stablecoin
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