Until recently, UST was referred to as a stablecoin with a market value of around $50 billion. Today, this token crashed. Thousands of investors have lost huge sums invested in the project. Who is to be blamed for the destruction of UST and LUNA – you will find out in this article.
What began immediately after the collapse of tokens?
On May 12, the developer of the blockchain network Terraform Labs shared his vision of how to save the UST and LUNA coins from the collapse. The specialists of this company have repeatedly said that the oversupply of UST puts pressure on the price of the LUNA token. Developers are faced with the need to withdraw debt from circulation in a stablecoin, and in the shortest possible time. Their plans included increasing the issuance of the digital asset and expanding the base pool for the LUNA coin.
In addition, Terraform Labs has also developed other methods of action. First, it was necessary to burn 1 billion UST tokens, which were still in the hands of members of the crypto community. This also included the destruction of 371 million units of this cryptocurrency on the Ethereum blockchain. Secondly, the allocation of 240 million LUNA coins was stipulated to prevent attacks on the network.
How did other market participants perceive these ideas?
It is worth saying that the aforementioned ideas of the developer in the society of crypto-authorities were met with condemnation. For example, Changpeng Zhao, the CEO of the most popular cryptocurrency exchange in the world, Binance, stated in his personal Twitter profile that the rescue according to the Terraform Labs scenario would certainly turn out to be a failure.
A slightly different opinion about the situation was expressed by Galaxy Digital founder Mike Novogratz. He believes that problems with Terra caused the loss of investor confidence in decentralized systems and the entire digital asset market. According to Novogratz, Terra is a big project that could have been a success. He explains its closure, first of all, by macroeconomic factors. Lowered rates increased demand for UST and pressure on reserve assets, which caused panic among investors.
Why did the UST really fail?
The fiasco of UST and LUNA is actually due to errors in preliminary calculations. The project simply could not withstand the volume of accumulated problems. Crypto traders understood that this coin is not backed by anything, as it is not algorithmic. They were aware of the potential risks, but still continued to transfer their money to UST. It’s all about the numbers:
- the yield of the UST token was 16-20% per annum;
- The yield of the Tether cryptocurrency remained at the level of 5% per annum.
In the pursuit of big money, investors fell into their own trap. Such disparity in profitability from the very beginning implies the possibility of such situations. Experts believe that in the near future new projects with a high market value will appear on the market, which will promise high profitability with maximum security. But it is important to remember the main rule of trading: the higher the profit, the more you have to risk.