In the early morning of the 14th Beijing time, in the face of the sharp drop in the price of the coin, Do Kwon, the founder of LUNA coin, said on social media that he did not sell any LUNA coins during the crash, and apologized to the victims of the incident. The team is currently sorting out the reserves. and usage, and a new proposal for reconstruction has been put forward in the community to try to protect the community and developers and find a way to rebuild the LUNA coin.
Boosted by this news, the LUNA coin then rose rapidly, soaring by more than 11,562%. As of 11:00 on the 14th, Beijing time, the currency price was 0.0001 US dollars.
“Coin Circle Maotai” Flash Crash
On May 13th, Beijing time, “On the virtual currency trading interface, dozens of coins are all red, which is particularly dazzling.” Awen (pseudonym) closed the trading software, “It hurts to look at it, and I don’t want to touch it again. .”
According to CoinMarketCap data, the LUNA coin reached an all-time high of $119.5 on April 5, with a maximum market value of $41 billion (about 278.6 billion yuan). However, since May 9, the price of LUNA currency has been falling, and the currency price has almost returned to zero.
Driven by the LUNA coin flash crash, cryptocurrencies including Bitcoin and Ethereum also experienced bloody storms. Bitcoin fell below the $30,000 integer three times this week, and once fell below the $27,000 mark, hitting a new low this year.
On the night of May 12, Hodt (pseudonym) hadn’t slept, and his mind was full of the disappearing money. Previously, he tried to persuade his wife to invest four-fifths of his total savings of $1.2 million in the virtual currency LUNA coins, and he has lost 98% of the current exchange rate, which is equivalent to about 6 million yuan at the latest exchange rate.
In addition, more than 100,000 people have been liquidated. According to data from the currency world, as of 11:00 on the 14th, Beijing time, more than 160,000 users had liquidated their positions within 24 hours, and the liquidated positions were worth 2.12 billion yuan.
“It took me a few years to earn from $100,000 to $1 million. It took me only 1 hour to lose $1 million. The currency circle has been turbulent in the past two days, and I have nothing to say, because my position was liquidated.” Hualu (pseudonym) is an “old driver” who entered the currency circle in 2017, and has experienced many big drawdowns, but this million-level drawdown may make him quiet for a long time.
“I always believed that LUNA would return to zero, so when LUNA rebounded from $0.5 to $1.5, I added a short order, plus a part of the hedged LUNA, the total position opened to 400,000 LUNA, and then everything rebounded to 4 When the dollar exploded, I quickly deposited money and borrowed money from everywhere. Maybe I didn’t understand the contract well enough, it kept adding margin to me, and it happened that almost all my money was in it. Watching the price keep changing Gao, but I still couldn’t stop the loss, and I kept shouting in my heart that LUNA would return to $1. It did go back, but only after I liquidated my position.” Hualu said.
Since May 13, top virtual currency exchanges such as Binance, Upbit and Bybit have successively released announcements on delisting and suspending deposits and withdrawals of the Terra (LUNA) network. The Coinbase exchange even directly warned investors that they may lose all their capital. return.
Stablecoins are unstable
LUNA coin and UST coin are algorithmic stable coins of the decentralized financial protocol Terra. LUNA coin is used for stablecoin issuance, price stability mechanism and network governance. So why did it crash suddenly?
This starts with the concept of “stable coins”.
The price of most virtual currencies is volatile, such as Bitcoin. This also makes virtual currency unable to be used as a real “currency”, and it is even more difficult to become a safe haven for investors. Therefore, a virtual currency whose price is as stable as possible was designed.
There are a variety of stablecoins on the market: one is a fiat-backed stablecoin, which means that in a U.S. bank account, there is a 1:1 equivalent backing of USD, such as USDT; the other is a stablecoin backed by a very volatile asset , which is an algorithmic stable currency. If the underlying layer collapses, it may cause the currency price to plummet, such as UST.
At the beginning of UST’s issuance, try to ensure that the currency price does not fluctuate, that is, 1UST is equal to 1 US dollar. The way of guarantee is that the LUNA coins issued at the same time as UST serve as the “middleman” between UST and the US dollar. People exchange dollars for LUNA coins and then LUNA coins for UST. The issuance of LUNA coins is automatically calculated by the code and determined according to the price of UST. LUNA coin absorbs the volatility of UST, so UST can be pegged to the US dollar. This absorption is achieved through arbitrage.
“When the UST price is higher than 1 USD, the user can send LUNA coins equivalent to 1 USD to the system (LUNA coins are burned), and exchange 1 UST (UST is minted) at the same time. When the UST price falls below 1 USD , the user can send UST to the system (UST is destroyed) in exchange for LUNA coins of 1 USD (LUNA coins are minted), which reduces the market supply of UST and restores the 1:1 anchoring relationship between UST and the U.S. dollar. A few days In the past, after someone bought a lot of UST and sold it at one time, the price of UST plummeted. Because the price of UST dropped too much, according to the code calculation, a huge amount of LUNA coins were automatically issued, tens of millions at a time, making LUNA coins The price of the coin has fallen by surprise.” An industry insider told reporters.
The above-mentioned industry insiders pointed out that when the virtual currency market encounters severe fluctuations, this stable mechanism that automatically adjusts the supply and demand relationship through the market will fail, and large-scale liquidation events may occur, which will further collapse the UST credit and fall into a “death spiral”. middle.
Affected by the slump in LUNA, the stable currency UST linked to LUNA fell below $0.21 at a minimum, in a state of severe decoupling from the US dollar, which is far from its “stable currency” attributes. It is understood that UST is the third-largest stablecoin in the cryptocurrency market, and its price has remained around $1 before.
The fortune of the big guy in the currency circle has shrunk
Because of the collapse of the virtual currency market, the net worth of the big players in the currency circle has also shrunk.
According to the Bloomberg Billionaires Index, Coinbase founder Brian Armstrong’s wealth has evaporated by about 83% to its current $2.3 billion.
Changpeng Zhao, the founder of Binance exchange, suffered even more losses. According to the Bloomberg Billionaires Index in January, Changpeng Zhao’s personal wealth was US$96 billion. As of May 14, the figure had shrunk to US$18 billion, evaporating US$78 billion (about 530 billion yuan).
In addition to individual investors, the loss of investment in virtual currency is also the country.
In September 2021, El Salvador became the first government in the world to make Bitcoin legal tender. According to statements on social media by El Salvador’s President Nayib Bukele, his government has spent about $105 million on bitcoin since it became the first government in the world to make bitcoin legal tender last September.
But bitcoin has fallen 45 percent since its initial purchase, reducing the value of El Salvador’s 2,301 bitcoins to about $66 million, or a floating loss of about $40 million.
