May 15 Newsletter: What Caused the LUNA UST Collapse?

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LUNA UST Collapse | Curve 3pool War

by David Anderson on May 15, 2022

What caused the LUNA UST collapse? I believe that the collapse was directly linked to the Curve 3pool War. And, I think that it boils down to arrogance or a lack of humility. I wrote a full blog article about this, but I thought that I would summarize it here.

First, Do Kwon was behind an earlier failed stablecoin, called Basis Cash. Do Kwon knew the fragility of algorithmic stable coins. So, earlier this year, he proposed to back UST with a “Luna Foundation Guard” (or LFG) composed of $10 billion in Bitcoin reserves. This was a good idea, but the idea never had time to mature.

Do Kwon announces a Curve 4pool with FRAX and UST. Now, this was a frontal assault against Curve 3pool and against the DAI stable coin. On March 23, 2022, Do Kwon tweeted, “By my hand $DAI will die.” The goal of 4pool was to ensure deep liquidity for the now-allied algorithmic stablecoins UST and FRAX and starve DAI for liquidity.

On May 8, 2022, in anticipation of the 4pool launch, the LFG removed $150 million in UST from the UST plus 3pool, this is a factory liquidity pool which pairs 3pool with UST. On the same day, an attacker uses about $350 million of UST to drain the curve UST-3pool of liquidity. Unaware of the attack, the LFG removed another $100 million in UST from UST-3pool. This starts the de-pegging of UST from the USD. On coinbase, UST fell to $0.94.

With the Curve liquidity drained of UST, the attack continued by selling UST on Binance. And, soon withdrawals from Anchor started. Then, there was panic in the system. The major de-peg happened on Monday, May 9, as people fled for the exits. By Wednesday, May 11, UST was $0.30, and UST and LUNA investors had lost confidence.

Attacking DAI was a big mistake. Before UST and FRAX could team up and launch an attack on DAI and the Curve 3pool, UST was attacked in the same way that they were planning to attack DAI, namely, by draining the liquidity on UST-3pool and draining the liquidity of UST on Binance. 

Is this Karma? I do not know, but I will close with a Proverb: Pride goes before destruction, and arrogance before a fall. It is better to be humble than to divide the spoils with the arrogant.

 

ON CHAIN ANALYSIS
May 15, 2022

Summary: The biggest loser is Terra with daily transactions up 344%. Another notable loser is Avalanche with daily transactions down 35% and daily active users down 9.6%. The biggest winner is Tron with daily active addresses up 105%. Also, Near was up 59% in unique addresses.

Bitcoin

Average Daily Transactions (last 30 days): 262,337 (Up 0.3% from May 1) 

Average Active Addresses (last 30 days): 672,975 (Up 1.3% from May 1)

Ethereum

Transactions Daily: 1,139,785 (Down 5.9% from May 1)

Unique Addresses: 196,783,107 (Up 0.9% from May 1)

Terra

Transactions Daily: 2,873,000 (Up 344% from May 1)

Addresses: 4,048,000 (Up 2.4% from May 1)

Binance Smart Chain

Transactions Daily: 6,919,425 (Up 47.4% from May 1)

Unique Addresses: 161,517,183(Up 3.3% from May 1)

Avalanche C-chain

Transactions Daily: 517,527 (Down 35.0% from May 1)

Total addresses: 3,087,439 (Up 5.8% from May 1) 

Daily active addresses: 71,740 (Down 9.6% from May 1)

Cumulative transactions: 168,589,977 (Up 6.9% from May 1)

Fantom

Transactions Daily: 908,932 (Up 10.9% from May 1)

Unique Addresses: 3,060,464 (Up 3.6% from May 1)

Solana

Transactions Daily: 15,484,858 (includes consensus transactions, 80%, Up 86.2%)

Daily active addresses: 1,630,267 (Down 65.1% from May 1)

Cumulative transactions: 74,272,293,110 (Up 3.5% from May 1)

Tron

Transactions Daily: 4,916,520 (Up 39.0% from May 1)

Daily Active Addresses: 2,655,868 (Up 105.9% from May 1)

Polygon

Transactions Daily: 3,395,220 (Down 7.8% from May 1)

Unique Addresses: 142,971,712 (Up 0.6% from May 1)

Cronos

Transactions Daily: 199,119 (Down 16.1% from May 1)

Unique Addresses: 763,687 (Up 5.5% from May 1)

Near

Transactions Daily: 780,850 (Down 15.0% from May 1)

Unique Addresses: 10,615,560 (Up 59.5% from May 1)



DEFI TOP CHAINS
May 15, 2022

Summary: The biggest loser is Terra at $0.42 billion in TVL (down 98.5%). The biggest winner is Tron at 3.7% of DeFi TVL, moving ahead of Polygon at 2.5%. Polygon is also a winner, up 41% in terms of percentage of DeFi TVL.

  1. Ethereum TVL: $71.72 billion (Down 34.8% from May 1) and 63.71% of total (Up 14.6% from May 1)
  2. Terra TVL: $0.423 billion (Down 98.5% from May 1)
  3. BSC TVL: $8.74 billion (Down 28.1% from May 1) and 7.7% of total (Up 26.3% from May 1)
  4. Avalanche TVL: $5.35 billion (Down 43.2% from May 1) and 4.75% of total (Down 0.2% from May 1)
  5. Solana TVL: $4.37 billion (Down 28.4% from May 1) and 3.88% of total (Up 25.5% from May 1)
  6. Tron TVL: $4.18 billion and 3.71% of total.
  7. Polygon TVL: $2.9 billion (Down 19.6% from May 1) and 2.57% of total (Up 41.2% from May 1).
  8. Fantom TVL: $1.95 billion (Down 51.5% from May 1) and 1.73% of total (Down 14.7% from May 1)
  9. Cronos TVL: $1.84 billion (Down 39.0% from May 1) and 1.64% of total (Up 7.1% from May 1).
  10. Waves TVL: $1.1 billion (Down 28.5% from May 1) and 0.98% of total (Up 25.0% from May 1).



BRIDES NET FLOWS
May 15, 2022

  1. Polygon:  INFLOW $217 million (last 14 days)
  2. Terra: OUTFLOW $3,200 million (last 14 days)
  3. Avalanche: OUTFLOW $1,700 million (last 14 days)
  4. Fantom: OUTFLOW $1,238 million (last 14 days)
  5. Near: INFLOW $146 million (last 14 days)

 

NFT MARKETPLACES
May 15, 2022

In the last 30 days, OpenSea ($362.4 million) and LooksRare ($66.7 million) have had a combined total revenue of $429.1 million (Down 9.3% from May 1). Coinbase’s NFT marketplace is still in invite-only beta, with less than $1 million in sales over the past week.

The follow stats are from DappRadar:

  1. OpenSea: 24,200 daily users (Down 26% from May 1), $50.44 million daily volume (Down 87% from May 1)
  2. Magic Eden: 32,050 daily users (Up 10% from May 1), $29.44 million daily volume (unchanged from May 1)
  3. Atomic Markets: 29.44 daily users (Down 20% from May 1), $0.16 million daily volume (Down 32% from May 1)
  4. LooksRare: 3,530 daily users (Down 48% from May 1), $4.37 million daily volume (Down 90% from May 1)

 

TECHNICAL ANALYSIS

May 15, 2022

On April 7, Bitcoin (BTC) turned bearish, and BTC has remained in a bearish trend. At the present time, BTC seems to be finding support at around $29,000. On May 1, BTC was finding support at $38,000. So, the bears are in control.

The TOTAL crypto market turned bearish on April 9. The Federal Reserve 5 basis point interest rate hike in the first week of May hit crypto hard. When Terra USD and LUNA self-destructed on May 9, we saw further declines. TOTAL has lost another $400 billion since May 1–in the two weeks prior, TOTAL had lost $1 trillion in market cap. TOTAL is currently finding support at just above $1.2 trillion.

 

TOP STORIES

May 1 to May 15, 2022

LUNA and UST were delisted from Binance & OKX

On May 12, LUNA and UST were delisted from Binance & OKX. After a bank run on UST and LUNA, LUNA becomes worthless and UST fails. Read more.

Lido staked ETH lost its peg.

On May 13, Lido staked ETHer lost its peg against the real ETHer. Lido is trying to increase liquidity on Curve’s largest pool, the staked ETHer pool. Lido has lost 50% of DeFi “total value locked” in the last week.

Tron launched the USDD stable coin

On May 7, Tron launched it’s USDD stable coin, which is modeled after Terra LUNA and UST. USDD is paying a yield of over 20% APR on JustLend. Read more.

USDT depegs from USD briefly

On May 12, during Asia hours today, USDT saw a depeg from $1 to $0.945 at its lowest point on FTX. USDT was being sold off and USDC was being bought, causing the USDC to rise to a peak of $1.06, briefly.

Germany Declares Crypto Gains Tax-Free After 1 Year

The German Ministry of Finance has published a letter officially confirming that the sale of crypto assets is tax-free after one year even if the coins are used for staking and lending. Read more.

Yellen Renews Call for Stablecoin Regulation After TerraUSD Stumble

The Treasury Secretary expresses hope that Congress will pass legislation this year to create a regulatory framework for stablecoins. Read more.

CPI printed 8.3% in April, 0.2% more than the 8.1% estimate.

The core CPI at 6.2%, that excludes food and energy, was also higher than expected with shelter cost, making about one third of the CPI.

Terra turned off its blockchain twice in 24 hours

With both its native token and stablecoin in freefall, the Terra blockchain was officially halted, twice. 

Instagram began testing NFTs

Meta CEO Mark Zuckerberg confirmed that the company is testing NFTs on the Instagram platform, with “similar functionality” coming soon to Facebook. Read more.

Polkadot launches cross-chain messaging system

The newly launched XCM messaging system is intended to promote Polkadot’s multichain ecosystem. Polkadot’s XCM is similar to Cosmos’ IBC. Read more.

The Fed raise U.S. interest rate by 0.5%

On May 7, the Fed raised the U.S. interest rate 0.5% for the first time since 2018.

Luna Foundation Guard Buys $3 Trillion in BTC

On May 5, The foundation bought $1.5 billion additional BTC, bringing the total to $3 billion worth of BTC. Read more.

Wholesale prices up; Inflation continues to be hot

The US Department of Commerce reported that wholesale prices jumped 11 percent in April, over last year. Read more.

China will now accept their digital currency to pay taxes.

The e-CNY token has the potential to shake up the financial world, if people outside of China start using it to pay for Chinese goods. Read more.

Coinbase stock falls 26% in one day

On May 11, Coinbase shares plummeted 26% and hit their lowest level ever. Coinbase reported a $430 million net loss in the first quarter, due to declining sales and active users. Coinbae shares declined 43% in the four days leading up to May 11, and fell 26% on May 11. Read more.

Crypto.com to slash their VISA card rewards

On May 1st, Crypto.com announced that they are slashing their VISA card rewards. Midnight Blue and Ruby Steel rewards will go from 1 percent to 0 percent. Royal Indigo & Jade Green from 1.5 percent to 0.5 percent. The changes take place on June 1st. Read more.

The Fear and Greed Index: 14 (Extreme Fear) 

The Fear and Greed index drops lower at 14 (Extreme Fear). Read more. The fear and greed index for the stock market is at 34 (Fear). Read more.

 

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