Crypto Now: The Collapse of UST / LUNA
We have to talk about the lunar ust situation, how thats affecting bitcoin and ethereum, obviously the huge sell off in markets in general, but how that has sparked one of the biggest blow ups really uh, potentially in crypto history, which is luna ust and then obviously you Know having contagion around the market, so i want to really go over. What ust is how that happened with this chart right here and lets talk about some of the ramifications of this um. You know how luna will come out the other side of this. If they will come out the other side, what they have to do and youre seeing just more selling in luna right now down 70 percent, and that makes sense because luna terra luna right this token right here – is actually used, um to essentially fund ust as well. So this should be selling off, because basically, what theyre doing now is trying to gather as much value as possible to back ust ust is supposed to be a dollar and its not trading at that. Now it traded down to about 60 cents on the dollar right. So a huge amount going on ill, try and try and explain the whole thing right here. Im gon na look and read from this article as well, so i want to shout out for this. Twitter account go and follow him ill link it in the description as well, really a tick by tick blow of what was happening on chain at the time as well.
Actually, before kind of the market started realizing what was happening so um yeah ill link. This account in the description you know, but but essentially what happened is you know people started selling off ust right? There was a big kind of um attack from obviously some some big players in the industry that sparked off. You know the the big fear of a of a um uncollateralized, stable coin, which is a run on the bank right. You start getting the dollar peg falling a little bit. Everyone starts to, you know, get a little bit scared and they withdraw their own capital. From that right, they sell ust for something else, either usdt or usdc, something like that right, so youre, getting massive selling of ust and so more and more selling more and more selling the peg fails, and obviously that is contagion and what youre seeing here. This is anchor protocol where so many people had ust earning that 20. That is just unseen right. Absolutely unheard of um, just a crazy! Now. This obviously means people are taking their money out. People are selling, people are getting out of the platform um, so this was obviously a huge contagion, so heres how ust works. Firstly, if you um dont, know um, you know we want to go through this first before we look at what what happened in the curve pools what happened with the dpeg, what happened also with selling of bitcoin and ethereum? So if you know how luna works, they made a big stink about buying bitcoin to back the peg of ust.
That has just completely failed. That was naive, to say the least, dokuan signaled to the market that he was essentially going long bitcoin with other peoples money and he was going along at 40, 42. Whatever it was. The market with much bigger bags could just sell him all the bitcoin that they had wait till he was full dump the price and obviously force him to sell a loss, which is what happened heres. How luna and ust works ust is a decentralized stablecoin. That means it is not backed by dollars in a bank account usually with something like usdt or usdc. Um usdt had some questions around it, but anyway with usdc, they have a dollar for every dollar stablecoin that they have. Usdc has a circulation of 50 billion dollars. Right now you can see that so that means that is how much money they have in a bank account in the states sitting there in cash or near cash theyre called near cash instruments. They are very, very short, dated debt were talking like three months here. One month, three month, debt, so you know basically cash theyre called cash instruments because theyre extremely liquid and have extremely short duration. That doesnt happen with luna and ust ust is backed by luna right. So the value of luna backs ust theres, a big mechanism that tries to keep um this peg hap like in place, which ill go over very simply now. I have other videos that really go through it in depth, but essentially what you do right.
You take your dollar and you buy ust and they give you one dollar of ust. Where does your dollar go? It doesnt go into a bank account, of course, because this is decentralized. There is no bank account, so it has to go to a kind of crypto bank account well thats what they do. They essentially take your dollar and what they do is they go and buy one dollar of luna off the market right so that obviously pumps, the price of luna every dollar that flows into ust is essentially a dollar flowing into luna and that pumps, the price. Of course, now the whole way that this mechanism works is that with the other way, if you want, if you want your dollar back, the luna right here is sold to the market. Who, then that goes back to ust, and you can then you know send that out to your your dollar. The problem here and probably with every other state. You know decentralized, stable coin is that this is a risk asset, and so it can be moved around and it can change with daily supply and demand and characteristics. One of these, the you know possible, downsides of a decentralized stable coin. Is that the value of the stable coin or the value of the uh, you know, reserve and base asset doesnt back the entire value of the dollar and thats whats happened here you can see. Terra luna is worth ten and a half billion dollars, as you know that market cap terra ust, is worth 16 billion dollars.
So heres heres a problem. You have people holding dollars supposed dollars with ust worth 16 billion and theres only 10 billion dollars to fund that that is an issue thats like thats like having um less dollars in the bank than you. You are owed right so its in its an impossible situation. Now this has happened as a result of the huge selling of ust. This is the open market position of luna, and there is a circulation of this. Why this is here is because essentially the lunar foundation, dokuan obviously has a bunch of tokens right. The luna foundation guard, as they named themselves, have a ton of luna as well. Now that was obviously pumped in price by people putting dollars in, and so you have this situation where theres a lot of open market luna but theres, also luna thats controlled by a small party of people that essentially use that as well to try and you know, Invest in assets that also back the the peg of this one, one dollar ust and what they did was go and buy btc, or at least an amount of now. Their plan was never to just buy a one for one amount of bitcoin with with ust. But what they did essentially is say: hey we want to buy, like you know, a few billion dollars of uh bitcoin to back the peg to back liquidity around this one dollar. So if there is an attack – and if there are a lot of people that suddenly want to sell out and theres a liquidity event, we have a few billion dollars worth of bitcoin very, very liquid asset in order to sell straight away.
Um to you know, shore up the peg and make sure that, even if theres a liquidity event, we have enough liquidity there to keep the peg at one dollar and so um. You know there wont be any contagion. There wont be any panic from other people trying to all sell out at once, obviously that didnt work so ill now come to an article from this twitter account, which i will link below its his work, not mine. So a great account of you know what was happening at the time and the on chain was just obviously telling a really big picture, which is summarized here, ill link this in the description as well. So obviously, you have um big liquidity pools around crypto that have a lot of different stable coins in, and that was part of the success of ust was attracting a lot of liquidity and they went out and got this liquidity by via various methods. Um, you know both social and and getting a lot of attention and hype, and also you know just having a lot of liquidity there, because really this was one of the best ways to attract money to one protocol itself. You know one of the most difficult things in crypto is to try and attract money into your your protocol. Well, this was like the dream of all, because it was just direct dollars. It was like someones going to give you one dollar right into your token right and you just have all of this cash sloshing around, so people were attracted to that, but obviously that peg and the liquidity started.
You know breaking down. So what you can see here is the curve pools where a lot of the liquidity and trade between ust and other stable coins happens, namely us dollar, tether, us dollar coin um and diet as well. I think and fracks as well so theyve added some in you can see down in the bottom right um the proportion of ust in blue compared to the others. Um is obviously going through some big events right here and it thats what shouldnt happen right. So you can see firstly, basically what was happening is someone was just absolutely carting ust at this liquidity pool right selling it into the pool and getting out us dollar tethering us dollar coin, and that was creating an imbalance and obviously that thats not good that that Means something is wrong when theres this imbalance like this, so what um, lfg or whoever is kind of backing this project did was send 50 000 ethereum um to a exchange to basically sell that for us dollar tether and some you know some some other dollars to Reduce the imbalance in the pool, so you can see here, 50, 000 or so eath was sold and another 20 000 was sent to binance. That is a ton of money right, one eath is three thousand dollars or or so this was keeping the ust peg, but it was leading to hundreds of millions in on chain east sales and who knows how much on binance and obviously thats a centralized exchange.
So you cant really see that so what theyre saying is whoever this was: has ethereum and theyre dumping ethereum at the market. Hence why you see both ethereum coming down and bitcoin, because it was happening around that too um. You know that is obviously creating liquidity back into us dollar tether that they were using to essentially buy ust to keep the peg a one for one now. What you can see here is exactly how it happened is that the ust in blue versus the other stable coins in the pool in orange, you can see that it was just you know, de pegging and, and there was massive selling of ust now what you can See here, as it comes back down right here, is that they were um, basically carting ethereum at the market, selling it for those stable coins and then rebalancing essentially buying ust on their book, trying to keep the peg and you can see it actually did work. It came down back to more or less parity, so thats, obviously good for for what they wanted to do was keep ust, but this is you know. This is hundreds of millions of dollars worth of liquidity that theyre trying to pour into this. To save you know the the peg of ust, obviously it doesnt work as you can see, but then it happens again. You get another event more selling of ust. This is when the address hero 2 fixed the problem with a blunt 250 million dollars worth more liquidity.
Wheres that liquidity coming from probably ethereum sales, maybe some lunar sales right, luna, big lunar sales coming in uh, theyre selling luna to get the other um stable coins in order to sell them to buy more ust, to try and keep uh parity again, and it actually Worked again, pretty pretty blunt right, bang straight down to parity again, so youve got the sellers of ust trying to force it into huge liquidations, um and then twice lfg or whoever, it is have bluntly, gone and sold. Ethereum to you know those other stable coins to try and you know, get it back to parity. The scale started to become worrying hundreds of millions spent on chain now holding ust as essentially toxic debt. Think about this, the people that were selling ethereum at market, whatever price dumping, the price of that and you know, therefore the whole ethereum ecosystem comes down. They are selling that for us dollar, tether and then taking us dollar tether and buying ust ust is now toxic debt because there is a run happening on the bank and people are selling it, and so you know the chances youre buying ust here at you know, 98 cents on the dollar 97 cents on the dollar. How are you going to get your dollar back, where its going to keep going lower so thats? Why its called you know toxic debt right? Because there are no um, there are no buyers for it. This is when the final attack began at this point just on chain.
There were 580 million dollars of unsellable ust in hero2s address, so theyre just buying usd over and over and over again and again, the third attack happened. Now this was probably more not just the attacker or whoever that was, but also the market itself. You know lots of people that own ust, saying whoa. This is scary and im just im out right, and so you get a lot of people trying to sell all at once. You get this run. This is a run on a bank thats, exactly what it is so ust just completely de pegging. Overall, when you saw you know this things supposed to be a dollar and its just this huge amount now for the most part, ust has recovered some of this, but the amount of money that it has taken to try and prevent. It has obviously completely overwhelmed the kind of lunar ecosystem actually at a certain point. During this de pegging event, it looks like luna basically gave up trying to you know, keep the ust peg anywhere near. You know: uh parity at a dollar, um and thats, quite clever. Actually, because what what essentially youre doing is to ust sellers, especially whoever or you know whomever, maybe a group of of attackers on on this youre lowering the price that theyre selling ust at and obviously theyre making less money theyre getting into kind of a a worse Position every time, and so what you can do is let them sell right down to maybe 80 cents 70 cents, something like that and then what you can actually do.
If theyre shorting, your st you, you then wrap that in their face, so youve heard of short coverings, where people go short and then theyre actually in a losing position and they need to buy back their short and thats. Where you get these short coverings and big, you know, rises thats, potentially what theyre doing here as traders saying you know what, if you want a short ust, you can do it but were not going to let you short it at 98 cents. Well, let you short it at 70 cents and then well use our liquidity there to try and get you to short cover and kind of raise the price back up thats. Just what kind of trading trading can happen and um? You know thats, probably what these traders did so thats, the technicals of how the kind of trading happened and how the deep egg happened and how it was just completely unsustainable for uh luna to actually just keep chucking billions of dollars at this, because it was obviously It was obvious that the kind of market itself had more liquidity to sell than they could absorb. But where do we go from here? Because you know a stable coin is supposed to really just be trust. Thats, really all it is one dollar for one dollar at all times, and how can you sell a stable coin on anything, but you know pure trust, so that is obviously a question that we just dont know right now, its still very early.
You can see that the amount of people pulling out of anchor is obviously extreme right here. Uh people just want their money out, which is obviously fair enough now, with other, depending events that have happened in the industry. What usually happens is that the stablecoin does actually recover to a certain point, because obviously, the people that have sold it, especially attackers that sell short, do have to cover their short back and then they will have to buy that back. So you know these deep egging events often become extremely um violent, but then do recover to a certain extent, but obviously its about the future of you know can ust as a as a brand as a stable core and actually carry on at this point and obviously Um we dont know now, because luna were backing the peg with uh ethereum and obviously a bunch of bitcoin as well. Thats all been sold out, so luna basically bought bitcoin up here at 45, probably has sold a bunch at 31., its just an absolute uh carnage. Uh trade completely in a few weeks right from 45 they bought and now theyre selling to back the peg at 30.. I dont know how much they have left. I dont know how much theyve sold, but they probably would have sold um a good chunk. So, just a terrible trade right here, funnily enough, what were seeing is a bitcoin bounce today, along with the stock market around this 30 level.
This is just unreal support right here. If we break the 30 level um, you can see. The support really just is non existent down to about 25, where the last kind of um area of value really traded here at you know, 20. 22. 23. 24. You can see actually in a previous video. This is, hopefully whats going to happen, but obviously we dont know that for now this is buybit by the way. If you want to get deposit bonus one by bit ill leave that in the description you can get up to four thousand dollars in your futures trading account if you make a deposit so ill leave that link. If you want a trading deposit bonus and then we can see, ust against us dollar actually recovering a lot now back to about 90. So you know anyone selling out now youre only making a 10 loss on that dollar, rather than those guys down here which were making a 40 loss. So these things do recover. Luna are really using their capital now to try and bring it back to the peg. Rather than defending it initially, if you want to get up to 4 000 in your futures trading, account ill leave. The link to buy a bit below only for experienced traders, though, because that is a futures trading – account bonus but theyll give you up to four thousand dollars so ill.