Category: Stablecoins

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Crypto News Stablecoins Terra

LUNA Investor Arrested for Knocking on Founder’s Door After Losing $2.4 Million

A South Korean investor who claims to have lost US$2.4 million in the Terra ecosystem collapse earlier this month has been arrested after knocking on Terraform Labs founder Do Kwon’s door and attempting to speak to him about the loss.

Despite not technically trespassing on Kwon’s property, the investor is believed to have broken South Korean law by trying to approach Kwon and will likely face a fine.

Lack of Public Statements Prompted Personal Visit

The investor, a social media personality known as ‘Chancers’, says he was distressed after suddenly losing three billion won (US$2.4 million) in the catastrophic collapse of Terra, after the Terra-based stablecoin UST lost its peg to the US dollar.

I felt like I was going to die. I lost a lot of money in a short period of time. Around $2.4m of my cryptocurrency was wiped out.

Chancers, aggrieved LUNA investor

This combined with virtual silence from anyone involved with Terra regarding the state of the network drove Chancers to attempt to speak with Do Kwon directly. 

After finding Kwon’s address online, Chancers travelled across Seoul to confront him in person, while live-streaming to about 100 viewers.  Explaining the intention of his visit, Chancers said: “I wanted to ask him about his plans for LUNA; I suffered a huge loss and wanted to talk to him directly.”

Wife Calls Police, Investor Turns Himself In

When Chancers arrived at Kwon’s property, he was greeted by Kwon’s wife who said Kwon wasn’t home and called the police.

The following day Chancers found out police were searching for him and on May 13 he turned himself in to the local station. Despite the fact he didn’t trespass on or damage any property, Chancers now expects to be charged and faces a fine and a criminal record.

“It’s so hard,” Chancers lamented. “I lost a lot of money and now I’m being investigated by the police. I originally served as a civil servant in Korea. But if I am convicted of this case, I may not be able to return to the civil service again.”

Other affected LUNA investors rallied to support Chancers on Twitter, and at least one of them offered some sage advice – albeit in hindsight:

In welcome news, South Korean authorities are also investigating the collapse of Terra to see if any crimes were committed in the lead-up, something many investors will be very interested to know.

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Bitcoin Crypto News Regulation Stablecoins

Crypto Updates from the World Economic Forum Conference

Despite previous displays of disdain for the sector, cryptocurrencies have featured prominently in this year’s edition of the World Economic Forum’s (WEF) annual meeting in Davos, Switzerland.

Crypto, Blockchain and a Meeting of the Global Elite

It’s that magical time of year when the world’s political and corporate elite congregate at the WEF’s annual meeting to “shape the future”, according its founder, Klaus Schwab.

Since the last conference in 2020 (the 2021 meeting was deferred due to Covid), crypto has gone mainstream and become an institutional asset class. Unlike years gone by, Davos 2022 has been a veritable crypto-fest with advocates making sure their voice is heard.

Five years ago, we were the only crypto company on Promenade; look at it now.

Sandra Ro, CEO, Global Blockchain Business Council

As attendees alighted from their private planes, they could hardly miss the cacophony of crypto messaging:

CoinDesk - Unknown
Polkadot signage featured prominently nearby. Source: Yahoo

Remarkably, even NFTs featured at the conference:

Hot Button Topics

Given the recent LUNA/UST meltdown, several sessions were held in relation to the safety and regulation of stablecoins.

Representatives from both Circle (USDC) and Ripple (XRP) were present at a panel discussing remittances and digital money entitled “Remittance for Recovery: A New Era of Digital Money”.

CoinDesk - Unknown
Sara Pantuliano, Asif Saleh, Ripple CEO Brad Garlinghouse and Circle CEO Jeremy Allaire discuss remittances. Source: Coindesk

According to Circle CEO Jeremy Allaire, the idea of cross-border remittances will in time disappear:

We don’t think about cross-border emails. We don’t think about having a cross-border web browsing session, it’s absurd to think about that. And I believe we’re on the cusp of that with money. And I think when it comes to remittances, I believe the concept of a remittance will also disappear.

Jeremy Allaire, CEO, Circle

On a WEF congress main stage, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), downplayed the idea of cryptocurrencies such as bitcoin as money, adding that “a prerequisite for something that would be money is to be a stable store of value”.

Presumably, Georgieva would view stores of value along a spectrum, given the US dollar’s decline since the establishment of the Federal Reserve:

Visualizing the Purchasing Power of the Dollar Over the Last Century
Devaluation of US dollar since 1913. Source: Howmuch

Call for Consumer Education in the Wake of Terra Meltdown

The international lender also commented on the recent Terra collapse, suggesting that regulators should do more in the way of education to make consumers aware of the risks.

Earlier this year, the IMF recommended a common framework for central bank digital currencies (CBDCs) and crypto. Central bankers in attendance at Davos concurred, saying that good design was “crucial” to the success of retail CBDCs.

Overall, it’s evident that the industry has made dramatic strides in the recent past. Even mainstream finance is coming to the realisation that crypto, in one form or another, is here to stay.

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DeFi Fantom Markets Stablecoins

Fantom Stablecoin ‘DEI’ Loses Dollar Peg, Sinking 35%

Following on from the collapse of TerraUSD (UST), the Fantom-based algorithmic stablecoin DEI has also lost its dollar peg, plummeting 35 percent in value to reach an all-time low of US$0.54 on May 16.

Like many algorithmic stablecoins, DEI became unstable after DeFi market confidence was rocked by the UST debacle, dropping to US$0.97 on May 15 before suddenly falling dramatically the next day. At the time of writing, DEI was trading at US$0.62:

If we take a look at the chart, it clearly shows the peg sinking into the red:

DEI/USD Chart, Source: Coinmarketcap.com

What is DEI?

DEI is an algorithmic stablecoin on the Fantom blockchain created by DeFi project DEUS Finance. It’s the unit of account for all projects built on DEUS infrastructure. 

In many ways DEI is similar to UST, the primary difference between them being that DEI is collateralised – meaning that users can mint 1 DEI by depositing US$1 of collateral in the form of either USD Coin (USDC), Fantom (FTM), Dai (DAI), wrapped Bitcoin (WBTC) or DEUS (the DEUS Finance governance token).

DEI attempts to maintain its peg much like UST by using an algorithm that incentivises arbitrage trading to maintain a stable value.

What Triggered the Crash?

The proximate cause of DEI’s decline was the loss of confidence in algorithmic stablecoins caused by the sudden collapse of LUNA and UST, though there were other factors that made DEI especially vulnerable.

The DEUS Finance ecosystem had suffered two flash loan attacks in the past two months, losing over US$30 million. In addition, the DEUS governance token has plummeted in value over the past six weeks, falling from its all-time high of US$1062.41 on April 2 to just US$218.80 at the time of writing. 

These issues have caused the collateral ratio of DEI to drop to only 43 percent, according to DEUS Finance, which means there isn’t enough capital backing the coin for users to make redemptions against their DEI, further undermining confidence.

DEUS Finance Doesn’t Want to See DEI Die

To try to avoid complete collapse, DEUS Finance has suspended redemptions of DEI in an attempt to stabilise its price. It has also announced a treasury bond program to attempt to raise funds to increase DEI’s collateral ratio and restore confidence:

Despite these efforts, some community members took to Twitter to voice their concerns that DEI may go the way of UST:

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Crypto News Stablecoins Terra

Terra Founder Claimed to be Mastermind of Failed Earlier Stablecoin Project, Basis Cash

Do Kwon, founder of the Terra blockchain and the company behind its protocol, Terraform Labs, was allegedly the brains trust of another failed stablecoin project, Basis Cash (BAC).

According to a recent report from US-based crypto journalists Danny Nelson and Sam Kessler, Basis Cash was an Ethereum-based stablecoin meant to be pegged to the US dollar through code and not any actual collateral. The project was abandoned by its creators in early 2021 after it failed to reach parity with the dollar, in fact sinking below US$1:

As Crypto News Australia reported this week, TerraUSD (UST) lost more than 50 percent of its value in a single day after the stablecoin started de-pegging due to a series of significant withdrawals on the Anchor Protocol, a DeFi lending protocol that offers high yields in UST.

Kwon Outed as BAC Co-Founder ‘Rick Sanchez’

Now, new controversy surrounds Kwon as he was one of the two pseudonymous co-founders of BAC, going by the moniker “Rick Sanchez”.

Do Kwon, Terra founder. Source: Forbes

Looking at DefiLlama stats, we can see Basis Cash had a TLV (total locked value) peak of roughly US$175 million shortly before dropping to almost zero in December 2020. BAC’s current market price is 0.007.

Too Little, Too Late for UST

At the time of writing, UST had lost nearly 40 percent of its value in the past week, as per data from CoinMarketCap. The Luna Foundation Guard (LFG), stewards of Terra’s UST, is looking to inject US$1 billion to save UST. However, the crypto community remains reticent and thinks it may already be too late for a bailout:

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Crypto News Markets Stablecoins Terra

Luna Plummets 97% Amid $900 Million in Liquidations

The sea of red in the crypto market has caused issues with Terra’s UST stablecoin, which relies on bitcoin as a reserve currency. The plummeting LUNA price has also caused liquidations totalling nearly US$900 million.

Terra Stablecoin Crashes

During the past week, a marketwide correction has been ravaging the cryptocurrency market, with LUNA hit harder than others. This is mostly due to a negative feedback loop that happened when the chain tried to stabilise its native TerraUSD (UST) algorithmic stablecoin. UST works with its sister token, LUNA, to maintain a price of around US$1 using a set of on-chain mint-and-burn mechanics.

The Terra public blockchain has seen massive growth in its ecosystem and the use of its TerraUSD (UST) stablecoin, mostly due to its key DeFi platform Anchor’s 20 percent returns. LUNA is the primary asset used to regulate and maintain the value of the algorithmic stablecoin. Created by Terraform Labs and its CEO/co-founder Do Kwon, the stablecoin used reserves of BTC to back its 1:1 value against the US dollar.

LUNA/USD price chart. Source: CoinMarketCap

The UST software automatically adjusts the price of LUNA, so that $1 of LUNA always matches $1 UST, thereby mimicking the US dollar. The asset was trading at around US$90 during the past month and has since dropped to below $1, losing about 99 per cent of its value in a matter of days.

As reported earlier this month, the stablecoin lost half of its value because it started losing its peg to the dollar:

This is $18 billion in wealth that we’re seeing evaporate before our eyes, and people are losing money.

Todd Phillips, director of financial regulation and corporate governance, Center for American Progress

Liquidations Triggered by Collapse of UST

As the price of Bitcoin crashed past US$30,000 – a 10-month low – over-leveraged traders were also caught out. According to data from Coinglass, in the past 24 hours almost 300,000 traders have been liquidated for US$896 million:

This situation stands as a reminder of why stablecoins – which play a pivotal role in the functioning of decentralised finance – not only pose a risk to individual traders but also a systemic risk to the entire crypto ecosystem if not managed responsibly.

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Crypto News Markets Regulation Stablecoins TerraUSD

US Fed and Treasury Hint at Incoming Stablecoin Regulation Following UST Fiasco

Both the US Federal Reserve and Treasury are eager to see stablecoins regulated by the end of this year, a move they say would improve the overall financial stability of the US economy.

A new report from the Federal Reserve has identified several risks associated with stablecoins – cryptocurrencies whose value is pegged to the US dollar – and has suggested that government-backed alternatives may reduce risks to consumers and investors.

The report follows the recent collapse in value of the stablecoin Terra USD (UST), which threatens to destabilise the DeFi market, and calls from Treasury Secretary Janet Yellen for stablecoin legislation to be enacted by the end of 2022.

Report Identifies Weaknesses of Asset-Backed Stablecoins

The Federal Reserve Board’s ‘Financial Stability Report’ identifies significant stability risks in the US economy. When discussing stablecoins the report focuses on centralised, asset-backed stablecoins such as Tether and USDC, highlighting the opaque nature of the assets backing the coins and the risks posed if or when there are runs on these coins.

Stablecoins typically aim to be convertible, at par, to dollars, but they are backed by assets that may lose value or become illiquid during stress; hence, they face redemption risks similar to those of prime and tax-exempt MMFs [money market funds]. These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins.

US Federal Reserve report

Algorithmic Stablecoins Aren’t Necessarily Stable

The recent decoupling of TerraUSD from the dollar has shown yet again that algorithmic stablecoins, like their asset-backed counterparts, are not necessarily as stable as they purport to be. 

Over the past few days UST has fallen dramatically in value, at one stage dropping as low as US$0.60 after its algorithm failed to function as intended and the delayed deployment of its Bitcoin reserves failed to prop up its price. According to CoinGecko, at the time of writing UST was changing hands at US$0.83.

UST isn’t the first algorithmic stablecoin to face stability issues; last year, Iron Finance plunged all the way to zero after a similar decoupling triggered a bank run costing investors millions.

Treasury Secretary Wants Legislation, Fast

US Treasury Secretary Janet Yellen. Source: ledgerinsights.com

In a further sign that legislation governing stablecoins in the US may be imminent, Treasury Secretary Yellen, when questioned on the issue during a May 10 hearing, responded that it was “important, even urgent” that Congress act. She went on to say she considers it “highly appropriate” that regulation should occur by the end of the year.

Yellen’s sense of urgency for legislation seems to have been heightened by the problems currently confronting UST:

A stablecoin known as TerraUSD experienced a run and had declined in value. I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.

Janet Yellen, US Treasury Secretary

This talk of imminent stablecoin legislation follows speculation last year that the US government was considering offering insurance to stablecoin holders of up to US$250,000, similar to the protections provided to account holders at insured banks.

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Crypto News DeFi Stablecoins Terra

Luna to Inject $1 Billion to Save UST Stablecoin, But is it Too Late?

The Luna Foundation Guard (LFG), stewards of Terra’s UST, are looking to raise over US$1 billion to shore up the algorithmic stablecoin after it lost parity with the US dollar earlier this week.

Just last month, LFG announced it had successfully raised US$1 billion to acquire bitcoin to underpin UST. Yet the stablecoin fell as low as US$0.60 on May 9, amid wider crypto market turmoil, recovering to $0.90 the following day.

Do Kwon Moves to Smooth Ruffled Feathers

Algorithmic stablecoins such as UST are meant to stay pegged one-to-one to the price of an underlying fiat currency such as the dollar, and to this end Terra co-founder Do Kwon quickly took to Twitter in an attempt to calm the market:

The group is now looking to raise fresh capital from some of the industry’s largest investment firms and market makers. The proposed deal offers investors the opportunity to purchase LUNA tokens at a 50 percent discount, with those tokens subject to a two-year vesting schedule.

Up to Four Investors in the Bailout Queue

Jump, Celsius, Jane Street and possibly Alameda are reportedly in talks regarding the deal, though none of the four has confirmed as much. The funding effort is LFG’s latest attempt to regenerate confidence in the market: 

Critics say the success of any deal depends on the strength of LUNA’s price and on its key DeFi platform, Anchor, continuing to produce an up to 20 percent yield to incentivise liquidity. However, Anchor has seen its total deposits plunge from a peak of US$14 billion to below $10 billion.

Reddit users are speculating on the background story:

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DAO Stablecoins TerraUSD

NEAR Protocol Launches Decentralised Stablecoin ‘USN’ to Compete with UST

The highly anticipated decentralised stablecoin USN has launched on the Near protocol with Decentral Bank, an independent team, taking the lead in the stablecoin initiative:

USN Stablecoin Goes Live

USN is a stablecoin designed in similar fashion to TerraUSD (UST) and can be minted by depositing NEAR tokens, the Near blockchain’s native crypto asset, as collateral. USN is led by Decentral Bank, a decentralised autonomous organisation (DAO), in collaboration with Proximity Lab, a DeFi-focused team in the Near ecosystem. USN does not pay as high a yield as previously thought, but still offers a 10 percent annual yield from Decentral Bank.

Additional Stability for USN

The Decentral Bank DAO will have a few stability mechanisms to support USN’s dollar peg, with the first being an arbitrage system that will try to ensure that the USN stablecoin trades around one dollar’s worth of NEAR tokens. The second stability measure is a “reserve fund” made up of NEAR and USDT tokens held by the DAO treasury. It is still unclear how much will be spent on this fund:

Stablecoins Should Be on the Lookout for TerraUST

In March, Terra co-founder Do Kwon outlined plans to buy US$10 billion in Bitcoin, which had a very bullish impact on the price of BTC. TerraUST also recently became the third-largest stablecoin, outranking Binance USD.

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Blockchain DeFi Stablecoins TRON

Tron to Launch an Algorithmic Stablecoin Backed by $10 Billion in Crypto

Tron CEO Justin Sun has announced his plan to launch a decentralised algorithmic stablecoin known as Decentralised USD (USDD) on the Tron blockchain, scheduled for May 5.

Tron CEO Justin Sun. Source: azcoinnews.com

Unlike traditional stablecoins such as Tether (USDT), which already runs on Tron, USDD will supposedly be “fully decentralised” – it won’t be backed by centralised assets held in traditional financial institutions such as banks, but will depend on algorithms to keep its peg to the US dollar.

Tron’s ‘Self-Imposed Revolution’ 

Sun characterised the plan as a “self-imposed revolution”, going on to describe USDD as “a fully decentralised stablecoin underpinned by mathematics and algorithms, bringing the development of stablecoins to the next level”.

He explained how he envisions USDD maintaining its peg to the US dollar even in the face of extreme market conditions:

USDD will be pegged to the underlying asset, TRX, and issued in a decentralised manner. When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralised system and receive 1 USDD. Regardless of market volatility, the USDD protocol will keep USDD stable at 1:1 against the US dollar via proper algorithms in a decentralised manner.

Justin Sun, CEO, Tron

Tron DAO to Establish US$10 Billion Reserve, Offer 30% Interest Rate

In a related announcement, Sun explained that Tron DAO, the decentralised autonomous organisation created to manage USDD, will establish the Tron DAO Reserve, which aims to raise US$10 billion from unnamed “prominent blockchain industry players”. This plan closely mirrors a recent announcement from Terra founder Do Kwon, who outlined his intention to acquire US$10 billion in BTC to act as a reserve for Terra’s algorithmic stablecoin, UST.

Sun said that the purpose of the Tron DAO Reserve would be to “safeguard the overall blockchain industry and crypto market, prevent panic trading caused by financial crises, and mitigate severe and long-term economic downturns”.

Sun added that Tron DAO Reserve would offer a “basic risk-free” interest rate of 30 percent, which surprised some Twitter users who considered it unrealistically high and unsustainable:

Announcement Sparks Gains and Scepticism

According to CoinGecko, TRON’s native token TRX gained about 18 percent following the announcement, hitting a high of US$0.074. TRX has since lost about half those gains and sits at US$0.067 at the time of writing.

While the announcement sparked investor interest, not everyone was convinced. Several Twitter users pointed out that the Tron blockchain itself isn’t exactly leading the way on decentralisation. Others pointed out that the plan resembled a poor man’s version of Terra’s UST being run by a guy with a less than stellar reputation:

Terra’s UST is the most popular algorithmic stablecoin in current circulation: UST flipped Binance USD to become the third-largest stablecoin by market cap earlier this week.

Categories
Crypto News Stablecoins TerraUSD

Terra UST Flips Binance USD to Become Third-Largest Stablecoin

Decentralised algorithmic stablecoin TerraUSD (UST) seemingly can’t help but make headlines these days. Most recently, it surpassed Binance USD (BUSD) to become the third-largest stablecoin by market capitalisation (market cap):

UST Making Waves

For the Terra team behind UST, it’s been a busy 2022 thus far, characterised by a string of bullish announcements that have thrust UST into mainstream consciousness.

Its youthful founder recently announced a program to buy US$10 billion in bitcoin to backstop the stablecoin and guard against extreme volatility that could undermine peg parity.

Terra Has A Huge Potential to Become The Second-Largest Bitcoin Holder, according to Do Kwon - CoinCu News
Do Kwon of Terra Labs, UST founder. Source: Coincu

Shortly after, Crypto News Australia reported that its market cap had soared some 700 percent in six months, surpassing Circle’s USD Coin (UDSC) as the fastest-growing stablecoin. In fact, its market cap has grown by 15 percent in the past 30 days alone:

Devil is in the Detail

When looking at the market cap for the top US dollar denominated stablecoins, it’s evident that BUSD has been marginally surpassed:

Top 7 stablecoins by market cap. Source: CoinGecko

However, eagle-eyed UST fans would be wise to temper their enthusiasm, as 24-hour volume reflected in the chart above demonstrates that BUSD still has almost five times the volume.

Compared to the incumbent, Tether (USDT), UST’s market cap is still five times smaller, not to mention that its volume remains at least 65 times lower.

However, when one looks at UST’s meteoric rise over the past six months (below), it’s self-evident that it is shaping up to become the fastest horse in the stablecoin race.

To be sure, UST isn’t widely embraced by the broader digital asset community. Despite the promise of censorship resistance, most criticism is directed against the stablecoin’s burning mechanism, which is necessary to maintain a 1:1 US dollar peg.

It’s too early in the decentralised stablecoin experiment to speculate how things will play out. For now, the only thing that can be said with confidence is that UST appears to be gaining ground on its rivals.