What has happened to Luna crypto?
Binance, the world’s largest cryptocurrency exchange, halted the trading of Terraform Labs’ Terra (Luna) and TerraUSD (UST) tokens on its platform. As a result of one of the greatest financial meltdowns in history.
Crypto lost more than 500 billion dollars. Shattering whole crypto and defi ecosystems and all triggered with this event of LUNA crashing.
There are 2 stories floating around the financial markets regarding what happened.
Firstly that BlackRock and Citadel allegedly caused one of the largest #crypto crash of the last few years.
The two investors allegedly borrowed 100k #BTC from Gemini. Swapped 25K of BTC into TerraUSD (UST). Called Terra Foundation suggesting they’d want to sell a large chunk of BTC for UST. Then hinted to buy them at discount to avoid moving the market.
Terra ($Luna) agreed to buy BTC for UST at a discount, lowering its own UST liquidity and reserves significantly.
After which, BlackRock and Citadel dumped all UST and BTC caused massive slippage. And triggered a cascade of forced selling in both assets.
At the same time, this also triggered a cascade of withdrawals from another large crypto. AnchorProtocol, holding large quantities of $Luna.
The withdrawals were more than Anchor could repay. Triggering a further sell-off in $Luna, thus further breaking the $1 peg of UST/USD.
BTC can now be bought by BlackRock and Citadel much more cheaply. They can repay their loan, and pocket billions in difference.
Meanwhile, over $300bn of long positions in stable and altcoins became wiped out. In addition, Luna tumbled from $86 to $0.16 in less than a week.
While BlackRock and Citadel denied the claims. Many believe, only the actions of very large institutional investors could trigger such a tumble. By two of the largest cryptocurrencies.
Secondly, perhaps a more reasonable explanation revolving around the earlier identified potential Achilles heel of the system:
The Anchor lending protocol.
A protocol which offers extremely high 20% yield (APY) on deposits.
Critics argued that users were flocking in rather for the unsustainable (?) yields than the actual stability of the coin.
In conclusion. this would result in making Anchor a ticking time bomb until the yields. And money would dry up and with it UST’s willing holders.
UST deposits dropped from $14B to $3B signaling a drop in confidence causing major selling pressure.
When there was no longer $1 worth of LUNA for every $1 of UST. Aome traders feared the entire system might become insolvent.