Saving the UST Stablecoin: The $3 Billion Bitcoin Sale Explained
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Chapter 1: The Urgent Response to UST's Crisis
In a desperate move to stabilize the UST stablecoin, the Luna Foundation Guard (LFG), created by Terra founder Do Kwon, sold off nearly all of its Bitcoin reserves. This decision was announced on Monday, revealing that the fund had liquidated approximately $3 billion worth of Bitcoin in a failed attempt to maintain the value of terraUSD, commonly known as UST.
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Section 1.1: The Bitcoin Liquidation
The Luna Foundation Guard disclosed via a series of tweets that it transferred 52,189 Bitcoins to engage in trades with counterparties after the UST fell below its intended $1 target. Specifically, Terra sold 33,206 Bitcoins in a last-minute effort to defend the peg. Following this, the LFG was left with only 313 Bitcoins in its reserves, amounting to approximately $9.3 million.
“We are still discussing various distribution strategies; updates will follow soon,” the foundation stated.
Section 1.2: Market Repercussions
The fallout from the unexpected decline of TerraUSD has sent shockwaves through the cryptocurrency market, causing instability among various other stablecoins, which are typically pegged to the dollar. For instance, the DEI currency from Deus Finance has recently been trading at around 66 cents, fluctuating significantly since Sunday and hitting a low of approximately 52 cents early Monday.
Unlike major stablecoins such as USD Coin and Tether, which are purportedly backed by actual assets, the value of DEI is determined algorithmically, based on transaction data. In contrast, the value of DEUS has been relatively stable despite the turmoil surrounding Terra.
As a result, the overall reputation of stablecoins, once seen as the most secure assets in the volatile cryptocurrency landscape, has taken a substantial hit. Anyone who anticipated UST maintaining its $1 value, including those who lent UST through decentralized finance platforms, now faces significant risks.
Chapter 2: The Mechanism of Algorithmic Stablecoins
The first video discusses how a single individual contributed to a staggering $45 billion market crash involving Terra Luna. Watch to learn about the events leading up to this dramatic fall.
The second video provides an explanation of the crypto reset and the emergence of Terra Luna 2.0. Discover the implications of these developments on the broader crypto market.
The UST stablecoin is classified as an algorithmic stablecoin, utilizing semi-automated price support methods that generally function effectively, even amidst high volatility. The LFG has substantial financial resources and may have other major investors ready to contribute to stabilize UST's price.
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