As a child, I remember my father trying to use a broomstick in a last-ditch effort to support a roof that collapsed from the weight of nearly three feet of snow. You can guess how well that went. Similarly, the Terra blockchain has reportedly spent $3.5 billion on keeping the roof from collapsing on itself. Now we see how much it costs the once-popular cryptocurrency due to its faulty broomstick.
The nonprofit Luna Foundation Guard, which oversees and supports the TerraUST stablecoin and its original coin Luna, said in a tweeted statement Monday that it had more than 80,000 bitcoin in its wallet as of May 7, among many thousands of other different ones. Coins. The reserve was built to support Terra should it fall below $US1 ($1). After TerraUST began to falter on May 8, the LFG reported that it had lent and traded its many thousands of reserve coins to preserve the pen it had in its stablecoin.
A stablecoin system like TerraUST is pegged to a currency, the US dollar, to provide financial security. One TerraUST was equivalent to $US1 ($1). Still, unlike other stablecoins, Terra was algorithmically stabilized rather than backed with assets. It worked with its sister coin Luna in a closed ecosystem to support each other to maintain the currency’s price. However, Terra started to falter around the weekend of May 8, causing people to sell their Luna in droves, creating a death spiral for both tokens. TerraUST is trading at 9 cents ($0.12) on the dollar.
After the rush to trade its reserves last week, the LFG said there is only 313 bitcoin left among other coins. It also has 222.7 million Luna coins in its resources. However, the vast majority are currently staked with validators, meaning they are used to support the Terra blockchain, which uses a proof-of-stake model. LFG stated that the Luna is non-binding and must be returned to strikers within 20 days.
Researchers at The Block estimate that the foundation had risen from $3.1 ($4) billion in reserves to just $87 ($121) million. Meanwhile, the foundation said it would compensate TerraUST users with the remaining tokens, starting with the smallest holders first.
Conspiracies were in flux after the stablecoin price collapsed last week. Some users falsely claimed that the foundation and Terra first supported the “whales”, i.e., the largest keepers of Luna and Terra. The LFG denied this.
There was never a deal for “insiders” to leave. LFG funds were used purely within its mandate to help protect the UST peg https://t.co/wjXQw5vNyu
— LFG | Luna Foundation Guard (@LFG_org) May 16, 2022
Terra founder Do Kwon had previously said they would provide documentation on how to use reserves, but the LFG’s latest tweets leave several questions unanswered. CoinDesk has reported on some skeptical analysts who were confused about why much of the bitcoin ended up in major crypto exchanges Gemini and Binance. However, it’s difficult to determine what happened to the coins after that.
What probably didn’t help Luna prop itself up was the rapidly declining price of virtually all cryptocurrencies around that time, including bitcoin. Ether, the second-largest cryptocurrency after bitcoin, had struggled to stay above trading at $2,000 ($2,776), compared to when it traded above $4,400 ($6,108) in late 2021. CNBC reported last Thursday that bitcoin hit price declines it has not seen in more than a year, with investors losing a total of $US200 ($278) billion during the rapid sell-off.
The fall of Luna and other cryptocurrencies over the past two weeks has regulatory dogs poised to pounce. The International Organization of Securities Commissions is considering creating a centralized regulatory body for what is traditionally called decentralized finance.