I have been dwelling all day as to the potential cause of Luna and UST demise. I have also been reading public discussions and watching youtube videos to understanding the current destruction in Luna and UST.
Then I found this in one twitter account dating back to November of last year 2021 and believe this is close to what happened when UST lost it's peg.
https://twitter.com/FreddieRaynolds/status/1463960623402913797
- FreddieRaynolds
The poster Freedie Raynolds lists the exact steps to potentially breaking down Luna and profit from the price drop.
A brief summary is that someone with a large enough stash of crypto setups shop to in swapping Luna and UST in big enough size to obtain a price difference in the swaps. This is consider arbitrage trading. The mechanics swapping between Luna for UST earns a little in each swap but if one does it in continuous loop they will earn a large sum at the end.
I do not think this is the only reason that made UST lose its peg but was the action taken by big fishes to knock out UST at a time where there was weakness.
In a upcoming 4 token pool between FRAX, USDC, UST, and USDT it was Do Kwon's intent to take out current UST pools stable coins to the new pool. What happened while he was withdrawing funds was big players also withdrew UST in the same Curve pools. In addition there were other speculators shorting UST and Luna.
The net net result was a cascading run out of UST and lose of peg that in turn lead to immediate burning of Luna to increase UST back to the dollar peg. As more and more UST were removed from the chain a "bank run" on the stable coin began leading to tremendous pressure of the chain itself to burn UST and get Luna. The downfall came as the limitation of the protocol to burning UST was not fast enough creating a bottle neck that lead to gap in buy and sell orders of Luna. This cascaded to even more selling as UST market cap was being reduced while Luna quantities was rise and losing demand which in turn leading to lower Luna prices.
Link in further details from Grayscale regarding the de-peg of UST as it was happening in the past few days.
https://grayscale.com/whats-happening-to-ust/
Do Kwon for his courage in open comments prelude to what was to come. Someone or group was going to teach him and all the investors of Terra a huge lesson.
Do thought he was ready and kept the illusion as such. His followers maintain the same belief and now we are seeing the results.
In the end this is only money. Let it be a lesson to us all that there is no way to easy money. What Terra has proven here is that crypto and likely any currency for that matter can fall to zero in an instant so be careful and always do your own research before investing.
None of what I write is financial advice. It is for entertainment purposes only. Thanks for reading!
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