LUNA UST Collapse | The Truth
What happened? How i personally incurred crazy losses and the rumors swirling around that this is some kind of intentional market manipulation and also i have an announcement to make at the end of this video, so stick around uh. The this event has ruined tons of peoples, lives and undoubtedly hurt the entire crypto market and youll see what i mean in a minute. I i really dont even want to be recording this video, so let me just give you, let me just give you the the essentials first, so ust its a stable coin, its supposed to be pegged to the u.s dollar. This happens through arbitrage trading, where investors essentially trade ust for luna, or vice versa, to keep that price right at one dollar. Now, typically, this works its had a few slip ups in the past, but nothing it hasnt recovered from every time. Theres been a slip up its been because you know the market tanks or something like that, but these things are made to withhold market events, so typically its fine. Well as youre aware im, sure ust is now trading at far less than a dollar around 50 cents. At the time of this recording and its been as low as 29 cents now, the worst part is that people buy and invest in ust and other stable coins as a bit of a shelter from volatility and risk. You park your money there when youre trying to be safe, like thats supposed to be the safe option, the best way to visualize.
This is like extreme inflation, which real inflation is pretty bad today, also, but inflation that doubles overnight. So coffee was three dollars yesterday. Well, its six dollars today and theres a chance. It could be twelve dollars tomorrow. This is essentially what happened to every single ust, holder and theres millions of holders. This is this is huge. So what caused all this? Well, at the beginning of the month, uh anchor protocol, which was the most popular lending platform on the planet, switched their rate structure. Here you could lend out the ust stablecoin token for around 20 apy crazy rates. The problem is that this was more of an introductory rate to get people in, and you know, build up excitement around this ecosystem rates would be lowered later they were burning a ton of cash and this couldnt go on forever, which is totally fine if cash ran Out rates would just drop, but your deposit would would have no issues whatsoever. Well, the beginning of may a new rate structure was enacted. That would make rates more variable, depending on demand within that protocol rates were expected to lower by about 1.5 percent per month. For a few months until that stability was found, and then they werent burning so much cash. So this started, and the expectation was that people who had money deposited on this anchor protocol earning interest would leave some people would and and the exchange would be spending less money. Well, the opposite happened.
Deposits hit a record high in early may after that, switch to around 18 billion dollars, but again this wasnt the end of the world. I personally kept an eye on it, but i wasnt exactly worried about this because again, the money runs out. Its fine, however, were in a touchy market right now. Stocks are going down, cryptos everything theres, a ton of fear on everything. Everything having to do with investing people in the general market began to sell cryptos, including the one that backs ust luna. The decrease in lunas price caused investors to be concerned about its ability to back the value of this now massive ust token, its a top 10 token. Now some investors began selling their ust and this caused a ton of downward pressure on ust because algorithmic it can go down in value. This took it off of that one dollar peg, so it went from one dollar and around may 7 to around 99 cents. Again. This wasnt, the end of the world, stable coins, fluctuate even usdt fluctuates a little bit just recently. Ust was trading at a dollar a one. No one battered i it was totally fine, so things were a little bit touchy, but so was the entire market. So this didnt seem like that big of an issue really that is until monday, when the fed announced the interest rate hike and this caused stocks and cryptos to tumble dramatically and almost instantly people worried about further losses in the market began selling, including the luna token, And ust, so this caused a kind of negative flywheel where lunas price decreases further and remember: luna is backing ust, so people get even more worried that the value behind this stable coin is crumbling.
This means even more sell offs happening and you can see this kind of negative effect happens because of these sell offs ust falls further off of its one dollar peg selling off more and more because now people are freaking out. You know it hits 98 cents. People like im done with this, you can see that negative effect compounding and we can see the market cap of ust dropping dramatically right at this time. This is where prices begin to absolutely free fall and im not going to lie. This was a very panic inducing time i saw this happen live. I was on the chart for luna and ust. I saw luna live dropped by 50 and what felt like minutes, i watched the price for ust, which is supposed to be a dollar drop down to 80 cents and then 70 and then 60. and theres, nothing. I could do about my deposits at this point. The network was congested by the time i could get any money onto an exchange. This thing could hit zero evaporating. My account anyone who was using leverage was very likely liquidated, especially by this point. If you had even 10 leverage its not looking good and thats a lot of people but whats, especially frustrating for me before i ever bought a single dollar of ust. Personally, i did an insane amount of diligence to determine if this risk reward made sense. I understood the tokenomics and the key risk factors im diversified.
I even chatted with three different crypto lending hedge funds to look at their risk analysis to like see if this actually makes sense. For me, i really like to do the research before i buy anything. The consensus seemed to be that ust would be totally fine as long as luna doesnt drop more than about like 70, which seemed like a reasonable margin to er margin of error. To me: well guess what happens? Luna dropped 70 percent and then some surprisingly, it didnt go to zero the first night, but i was still looking at larger losses than ive personally ever seen before this was money id sitting on the sidelines, waiting for good deals, while the market was just being crazy. I was trying to be relatively safe with it, so i keep my money in not wanting to. You know, be the guy who sells a dollar for 50 cents, because you know that sounds ridiculous. Who would do that and uh? And i know thats perfectly possible for the price to go back up to one dollar. I mean with an understanding of how this price goes back to a dollar. I even decided to try some arbitrage. I should be able to essentially buy ust for 70 cents or whatever its at and then sell it to tara for a dollar in instant 30 profit, whatever that difference might be. This was a major problem, though, because they have a safety mechanism that makes it less profitable to do arbitrage, the more that its being done, so it creates this kind of like cool down period within the system.
Now, in normal times, this is pretty useful, but right now this means my one dollar. Tokens are stuck at far less than one dollar for the foreseeable future. Meanwhile, the backing luna is getting pummeled, increasing the risk more and more as the price of luna goes down. This risk goes up plus that cooldown period just isnt happening fast enough. This is insanely bad, like the crypto version of the housing bubble, so the next day comes – and i know that were completely walking on eggshells here. If the crypto market drops further were screwed, absolutely a total bank run, but if we can be calm, prices will go back up to a dollar, maybe in a few days, maybe a week at most. So i monitor the market and sell a little bit at like 90 cents, but things seem to be healing up, so the plan was just to hang tight, just a little while longer just see where things trend. That was a mistake. Late on the 10th prices began to tank further and further, hitting eventually around 20 cents for ust a dollar now worth 20 cents. So thankfully i didnt panic sell during that time, but i do have sales around 50 cents on a dollar. They would do that. I guess me by far the most painful sales of my entire life. So not only am i part of one of the worst events – black swan events to happen in crypto, but now im thinking about how i i feel obligated to be transparent and talk about it.
Like someone has to talk about these events – and you know thinking about this – if i bought a volatile asset and it dropped 50 percent sure id be salty about it, but i think to myself like well, you know thats the risk you take buying a volatile asset, But when you buy something thats supposed to be the safe bet, you know reasonably safe, anyways, its not perfectly safe. You just feel betrayed when it drops and im sure theres a lot of people who kind of feel the same way as i do about this. You feel dumb, you think that you could have done something different. You think you should have done something different, but the more i think about it. I really dont think anyone who lost on ust should feel like they did especially anything like that wrong. I mean this is the definition of a black swan event. This is the lehman brothers collapse of crypto, its not just degenerates, who were part of this, its not a hundred thousand percent apy, yes, its high. If you dont get me wrong, like its a hint of degenerate for sure, but were talking, hedge funds were in this retirement savings. There was a lot of smart people who would invest in this who got absolutely smashed. Every single person invested just didnt, properly calculate risk myself included and thats the mistake that we made and for those saying you know this is 20 its unsustainable.
What do you expect youre, absolutely right, but so are lending rates on literally every single crypto platform. Every exchange that pays eight to twelve percent flat interest on stable coins is losing money in order to get people in the door. This is no different. No one would expect an 18 billion dollars to just essentially evaporate in two days and thats. What happened now im going to talk about uh the few what the future may hold here, but first i want to talk about the rumors that this may be a coordinated attack. Now we dont have proof on this, but i think its important to understand. Whats being said, anyways so marketing conditions, market conditions absolutely amplified this entire issue, but there are rumors that it might have been spurred by blackrock and citadel. They borrowed a hundred thousand bitcoin from gemini, and the story goes that they then swapped, 25 percent of that into ust. They then reached out to do quan, the founder of tara, saying that they wanted to buy a large chunk of ust and would sell bitcoin at a discount in order to do so, and they wanted to do it directly, so they didnt hurt ust too much. Supposedly. He took the bait lowering the supply of available ust again. This has not been confirmed. Blackrock in citadel then sold all the bitcoin and ust that they held, causing both markets to fall sharply at the same time. Creating this panic, or at least amplifying a panic that was happening once price decreased, they then buy back their bitcoin that they loaned out at a lower price and make a tidy profit on the loan.
Now. The unfortunate thing is that if this is true its totally legal, they were simply exploiting a market that had a major weakness, its extremely unfortunate but its a weak market and like theres, not much you can say or do some people did call that this could happen And i even did to a certain degree, but we shouldnt be too hard on ourselves, because if you look hard enough, you will literally find a prediction for anything. So so what now theres two major concerns that i want to point out and then my announcement. Tara is voting to tweak the algorithm of ust to get the one dollar peg algorithm to work faster, getting the price back to normal sooner. This is good, but the issue here is that will be at the expense of luna. It will cause a lot of downwards pressure, and even given this change, i foresee a ton of volatility in ust before it gets fixed if it can even get fixed. The stress is not over if you still hold ust. In my opinion, none of this is financial advice, of course. Now. Second, this is extremely bad for the entire crypto market. Both crypto lending and stable coins have had a close eye from regulators for the last year or so im willing to bet that this is the nail in the coffin, for both this event is exactly why markets get regulated. Look at the bank runs of 1907.
black wednesday, the 08 crisis. All of these things, people have their fun, they make their money markets get hot and eventually the music stops. Then regulators need to come in and try to prevent it from happening again, but then there always will be a new market that crops up and the exact same thing happens, and we saw this coming. I highly recommend watching my last two videos after this one is about governments attempting to replace bitcoin and stable coins, and the reasons to do so and the other is about how the anchor protocol is dying off. Like i couldnt have. I didnt plan it, but, like those two videos somehow landed perfectly. Unfortunately, the only thing that we can do now is learn from this. So personally ive learned that ill, diversify even further. I thought an eight percent allocation of this was, you know, risk i was willing to take, and i learned that even that can be too much now. I did want to do something because i know the community is hurting like i am honestly um, bitget and ftx sponsor me so im going to give that money to the community. Uh ftx is an all inclusive, crypto brokerage who allows you to buy a wide variety of cryptos nfts, with trading fees up to 85 percent cheaper than competitors theyre an awesome service ive been buying up bitcoin recently in this dip and its come in huge. Its come in handy uh, saving on all those fees.
So if you grab the link in the description, youll get an additional 10 off for life plus youll, be supporting this channel so sign up and try them out now the giveaway im going to be giving away 500 every day for the next seven days. On my discord, its totally free, all you have to do is join and react on the post in order to be entered uh i just thats all. I can really do at this point its a sad, its a sad day for crypto, and we just need to stick together. So thanks.