Stable Death

Famous stock investor Warren Buffet once said: ‘When the Tide Goes Out, You Find Out Who Was Swimming Naked’. Only a few weeks back under the title ‘Ponzi Or DeFi’ we spoke about the popular stable coin UST, part of the LUNA ecosystem, that was receiving significant attention due to its 20% APY on a stablecoin.

This week, UST’s peg to the Dollar came under attack and collapsed. The LUNA token, 1-1 redeemable vs UST, dropped from over $100 and over $50bn market cap to 0 within days as desperate UST holders were burning their UST and selling the LUNA they were receiving. Rumours abound that some bigger market makers triggered this run. The LUNA/UST system did not hold up.

Markets overall were hit hard. In one of the darker days in recent crypto history, total Crypto market cap dropped by over 25%. Bitcoin fell to its lowest point since December 2020, going down below $28k before rebounding. Briefly, even Crypto’s most popular stablecoin USDT came under pressure but has so far held up well.

The market indecision of the past months, as was becoming increasingly likely given the wider economic woes the world is facing, decidedly broke to the downside. Nobody can tell where things will go from here but even the proudest bulls can no longer deny that we are firmly in bear market territory.

On a more systemic level, we have seen a major Crypto project die within days. Many a big player was a major investor within the LUNA ecosystem and many funds held UST. The collateral damage of this crash will take some time to clear. Markets will need time to regain their confidence. Soon we will know if regulators will take UST’s collapse as an invitation to intervene.

Whatever happens from here, tighten your helmets, we are in for a ride.