Last week, the TerraUSD depreciated, losing over 99% of its value. Experts told whether such levels can be considered as profitable for investments, and why the asset will not return to its previous values
As a result of attempts to re-peg TerraUSD (UST) to the US dollar, the Luna Foundation Guard (LFG) lost about $3 billion, according to The Block analyst Larry Cermak. Before the collapse of the altcoin, the total value of coins in the fund reached $3.1 billion, by the current moment it has decreased to $268.3 million, and excluding the project’s own tokens, to $87 million.
In summary, LFG has gone from having $3.1 billion in their reserves a week ago to now having roughly $87M. Which means they spent roughly $3 billion defending the UST peg and UST still collapsed. https://t.co/A9UBKnMJDH pic.twitter.com/bbF1wd2U5A
— Larry Cermak 🫡 (@lawmaster) May 16, 2022
After the publication of LFG reporting, the cost of UST and Luna tokens continued to fall. The price of the stablecoin has fallen to $0.05, the Luna rate to $0.00013 (last week it reached $80). The company emphasized that it plans to use the remaining assets to offset the losses of holders of small amounts in UST.
UST lost its peg to the US dollar on May 8, when there was a sharp outflow of assets from the Anchor protocol, as a result of a decrease in the rate of return on deposits to 17.87%. LUNA, which is used to stabilize the price of UST, also suffered. Altcoin emission increased to 6.9 trillion tokens.
The risks of non-recovery of the price of tokens are quite high, the dilution of value occurred against the backdrop of an uncontrollably inflated issue of the token, which in theory should have compensated for the reduction in the cost of UST collateral, but only exacerbated the fall. Also, the reputation of the development team was seriously affected.
“Even after a single case of such a large-scale failure, the credibility of their future projects will be undermined, and in the conditions of the “information war” that was launched around Do Kwon, this effect will increase many times over.
In addition, the journalists managed to find out about the direct connections of the Terraform Labs team with the previously “ruined” algorithmic stablecoin Basis Cash (BAC),”
He recalled that the CEO of the project himself said that he was unlikely to be able to “restore the entire ecosystem completely” and suggested that the community deliberately abandon the price parity of UST with the US dollar, which, at best, would lead to multimillion-dollar losses for stablecoin holders. Any such plan will not bring any serious results to the parent asset of the Terra project (LUNA), the expert added.
We can expect Terra’s price to recover to some extent after the start of active actions to restore the ecosystem. At the very least, by drastically reducing issuance, reprioritizing, and using unspent reserves of bitcoin from the Luna Foundation Guard stabilization fund, a serious technical impulse to increase the price of LUNA can be created, and some late investors will be able to earn several tens of percent, provided that the strength of the sale of early investors ( those who lost more than 99%) will not outperform the purchase.
“In any case, such a “trail” of deceived investors will not allow the project to develop stably in the long term with any recovery plan,”
Also does not see long-term prospects for Luna, in this case, you can only buy a “deliberately failed project” in the hope of then selling it to “hamsters” who are still in the stage of denial and hope for a revival of the project.
“The reputation of Luna and UST has been lost forever, too much negative information about the founders, their manipulations, previous projects has appeared in the information field,”
Terra the “most hated” project in the crypto space, the failure of the altcoin had a negative impact on the market as a whole, so there is no hope for an early rise in the bitcoin rate, and new legislation will appear in the industry that will tighten regulatory oversight of stablecoins.
The idea of maintaining the rate of a decentralized stablecoin with the help of cryptocurrency reserves has, as expected, that the tokenomics on which the value of Luna was based, including the Anchor protocol, which promised 20% per annum for UST staking, raises questions.
“I don’t see prospects for recovery in Luna and UST, the confidence of market participants has been undermined. The collapse of UST provoked a domino effect and a collapse in the crypto market, pulling other cryptocurrencies with it and, perhaps, will be the first in a series of bankruptcies of other stablecoins,”
