Last week we talked about the dramatic fall of the Terra blockchain, which was in the TOP 10 of the rating with a capitalization of $40 billion back in April. The network was unable to maintain the rate of the algorithmic UST stablecoin, which is why the LUNA balancer coin depreciated in a few days. At the same time, it is still unknown whether the team has fully used the existing cryptocurrency reserve of $ 3.5 billion to save the system.
The parity of UST and USD was maintained by reducing or increasing the supply of LUNA. Since the demand for UST remained high due to the promised 20% annual return from staking, LUNA showed growth and became the only one of the TOP 10 coins that updated the maximum in 2022.
The company promises to make a detailed report on the causes of the subsequent collapse in the near future.
A number of analysts believe that the prerequisites matured much earlier than the May crisis, and linking UST to the company’s reserves is one of the signs of a system crisis.
UST is an algorithmic stablecoin whose issue is initially associated only with the LUNA price.
This distinguishes it from centralized stablecoins (for example, Tether), where reserves in bank accounts are responsible for the stability of the exchange rate. Terra took an unusual step by adding $3.5 billion of cryptocurrency reserve to the algorithmic UST.
By selling Bitcoin, Terra had to hold the UST rate when the value of LUNA fell. Either the volume of the reserve was simply not enough, or it was not used in full. Elliptic analytical agency traced the path of coins and found out that 28 thousand. BTC was sent to the account of the Binance cryptocurrency exchange, and 52 thousand. BTC – to Gemini account.
However, they could not trace the further fate of the assets. Terra could use the funds to support UST or transfer them to unidentified persons. If the company has kept its reserve, this creates an opportunity to restart the project.
On May 13, Do Kwon proposed a recovery plan with the formation of a new branch in the Terra blockchain and the distribution of 1 billion tokens between the holders of LUNA and UST based on a snapshot taken before the loss of the UST peg to the US dollar.
The head of Binance Changpeng Zhao and the leading validator of Terra Jiyun Kim criticized this option. Zhao noted that “the fork will not create new value,” calling on the company to buy back the coins for their subsequent burning. And Kim, whose pool has shrunk from $1 billion to $3 million, even offers the community to unite to create a completely new blockchain.
The lack of agreement in the Terra team significantly reduces the chances of restarting the network. In addition, a judicial investigation may soon begin against Do Kwon, since some investors have already filed a statement with law enforcement agencies.