Two decentralised protocols, Blizz Finance and Venus Protocol, have declared losses due to a LUNA price discrepancy after Chainlink’s price feed for the token got suspended over market conditions.
Attackers Take Advantage of Price Discrepancies
TerraUSD (UST) – the stablecoin issued by the Terra blockchain – suffered a sudden de-pegging last week, causing massive congestion across the DeFi market. Several centralised exchanges such as Binance had to halt LUNA trading amid the stablecoin frenzy.
A few days after the incident, Chainlink – an oracle network that provides real-time data for blockchain companies – decided to suspend the price feed for LUNA, whose price remained at US$0.107 on the platform while the actual market price was $0.01.
According to Blizz Finance, this decision allowed several attackers to deposit millions of LUNA tokens in the $0.107 price range to borrow all the collateral. The protocol stated that it was drained before the team could stop it:
Chainlink pausing the LUNA oracle allowed several attackers to deposit millions of LUNA which is still worth $0.10 according to the Chainlink oracle to borrow all the collateral.
The protocol has been drained before we could pause due to our timelock.
Blizz Finance hasn’t disclosed the amount drained, or if it plans to reimburse affected users.
On the other hand, Venus Protocol issued a statement saying that Chainlink’s suspension of LUNA price updates had resulted in the loss of US$11.2 million for the protocol, which will use its Risk Fund to remedy the shortfall from this event:
Given the continued risks of the LUNA market and in order to eliminate the possibility of further shortfall, the community has asked to suspend the LUNA market, effective immediately. Venus Protocol also has a Risk Fund that will be utilised to remedy the shortfall that resulted from this event.
Venus Protocol blog post
Venus Protocol issued a statement saying that Venus Protocol lost $11.2 million due to Chainlink’s suspension of LUNA price updates, and the LUNA lending market is currently suspended. https://t.co/FBKne9EIRf
While both protocols have fingered Chainlink as responsible for this incident, one Twitter user stated that it was the fault of negligent developers, adding that Chainlink feeds have a date time associated with the price data which the protocol failed to use:
Feeds have a datetime associated with the price data. You should be using it, no excuse not to. That's simply negligent – and worse blaming Chainlink. Their docs call this out. See 4 things you didn't do: https://t.co/NdNHc9nwoP
— Dana 🦀⚓ Glass Farm◎◎◎r (@TheSoftwareJedi) May 13, 2022
Earlier this month, Do Kwon, the outspoken founder of Terraform Labs, said that 95 percent of projects in the crypto space would die, adding that there was also “entertainment in watching companies die”.
As it turns out, his creation may be next:
1/ I’ve spent the last few days on the phone calling Terra community members – builders, community members, employees, friends and family, that have been devastated by UST depegging.
I am heartbroken about the pain my invention has brought on all of you.
In a tweet thread, Do Kwon has said that he was “devastated” about the much-publicised UST depegging and LUNA collapse, adding he was “heartbroken” about the pain his creations has caused investors.
Not one to go down without a fight, he continued, saying:
I still believe that decentralised economies deserve decentralised money – but it is clear that $UST in its current form will not be that money.
Do Kwon, Terraform Labs
He then pointed to a “revival plan“, begging the question as to how decentralised the ecosystem truly is. Quite expectedly, the crypto community remained highly sceptical:
Do Kwon claims that UST is better because it is decentralized.
But the peg is managed in a non-transparent way: people are still wondering what happened to BTC which was held in reserves.
If you promise something decentralized but you control it as a dictator, you're a liar.
I am telling you right now, don't give more money to Do Kwon! He betrayed his community $LUNA-tics. He is behind this trust me, he was warned but he didn't care. He is not even heart broken as he said on his tweets. He took his billions now trying to get more of you! #UST#SCAMhttps://t.co/nAAPBBxijp
Kwon’s plan amounts to a restart of the entire Terra blockchain, with network ownership getting distributed entirely to UST and LUNA holders through 1 billion new tokens as follows:
400 million (40 percent) to LUNA holders before the depegging event;
400 million (40 percent) to UST holders pro-rata at the time of the new network upgrade;
100 million (10 percent) to LUNA holders at the final moment of the chain halt; and
100 million (10 percent) to the Community Pool to fund future development.
While a decentralised economy does need decentralised money, UST has lost too much trust with its users to play the role. The blockchain underpinning LUNA and UST was shut down twice by validators over the past day.
Do Kwon, Terraform Labs
UST Debt Holders ‘Deserve to be Compensated’
Kwon added that he did not sell any of his LUNA or UST during the “incident”, continuing: “Even if the [UST] peg were to eventually restore after the last marginal buyers and sellers have capitulated, the holders of Luna have so severely been liquidated and diluted that we will lack the ecosystem to build back up from the ashes.
“UST holders need to own a large share of the network; as the network’s debt holders, they deserve to be compensated for the tokens they have been holding to the end.”
At this juncture, it doesn’t appear as if the market is onboard with the plan. At the time of writing, UST had collapsed to US$0.15, erasing US$30 billion, not to mention LUNA, which has tanked from US$120 in April to $0.0001896.
On the bright side, some have reflected on the potential lessons investors can take away from the whole UST/LUNA saga:
I am thankful for Do Kwon and Terra for giving us such an excellent story to reference and use as a lesson to future shitcoin-ponzi believers.
All popular narratives in "crypto" are built with ponzi schemes as their engine.
YouTuber JJ Olatunji, better known as English rapper KSI, has gone public with the admission that the US$2.8 million he invested in Terra shrank to a mere $1,000 within 24 hours:
My 2.8 million dollars is literally worth $1000
HAHAHAHAHAAHAHAHAHAHAHAHAHAHAHHAHAHAHAHAHAHAHAHA. Yeah I’m packing this in 😂😂😂😂 pic.twitter.com/qeiVN5yG2w
The announcement has left onlookers and KSI’s followers questioning what compelled him to buy into LUNA’s crash in the first place.
Motivation to Invest Remains a Mystery
The reason KSI chose to invest in Terra is unknown, given that the company was, and still is, severely crashing. KSI did state earlier last week that he intended to hold his share long-term.
However, the LUNA token is of unlimited supply and suffering the effects of serious hyperinflation:
$LUNA supply is unlimited guys. It will trend asymptotically towards 0 but never hit 0
$100, $10, $1, $0.10, $0.01, $0.001, $0.0001 and so on, until the peg is regained or liquidity is 0.
Don’t buy at $0.01 thinking it will go back to $10. You’re getting hyperinflated
KSI has already lost a significant amount of crypto this year, and last week shared a tweet acknowledging the error of his ways:
Before crypto, money was a driving force in my mindset. During my time, I made a lot of money, and lost a lot of money. I went from euphoric to depressed. But soon I became numb to it all and realised that money simply isn’t everything.
Following the sudden de-pegging of TerraUSD (UST) and the subsequent decline of Terra (LUNA), there has been a significant knock-on effect on the wider DeFi market. The issue has extended beyond the borders of the Terra ecosystem and is impacting DeFi tokens across all blockchains, with the entire DeFi market dropping by 21 percent over the 24 hours of May 12.
YouTubers’ Dodgy Crypto Deals
Unfortunately, interaction with, and the promotion of, dodgy crypto deals seem to be a trend among famous YouTubers. Two of the most notable instances of this are:
Paul Denino’s (Ice Poseidon) admission that he scammed his fans out of US$500,000 thanks to a crypto pump-and-dump scheme. Denino offered little remorse on being called out.
Logan Paul’s promotion of the shitcoin ‘Dink Donk’ earned him a place at the centre of a pump-and-dump scandal as the coin crashed by 95 percent in just two weeks.
The back end of 2021 also saw Google’s Threat Analysis Group (TAG) working hard to prevent hackers from hijacking YouTube channels to utilise them for the promotion of crypto scams. These phishing campaigns have reportedly been an issue since 2019.
Lido Finance has warned leveraged traders they are at risk of liquidations as a surge in ‘Staked Ethereum’ (stETH) redemptions has caused it to lose its 1:1 peg with Ethereum:
Against a backdrop of wider market turbulence, the stETH:ETH swap rate has deviated from its 1:1 peg.
At the time of writing stETH is trading at a discount of 4.2% to ETH on the main Curve pool.
When Lido sent out its warnings, the discount was 4.2 percent and rose as high as 5 percent before dropping again. As it stands, 1 ETH can be exchanged for 1.0248 stETH through the Curve protocol, which means it is currently trading at a 3 percent discount relative to Ethereum.
stETH/ETH Chart, Source: Coinmarketcap.com
Terra should remain live for the weeks to come, nevertheless, it would be prudent to move your assets as soon as practically possible.
The StETH price surged as people who have staked it in the Anchor lending protocol, which runs on the Terra blockchain, rushed to retrieve it on May 13 after the algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar.
Terra had also been paused twice, signifying an attempt by the team to save the network’s native assets as UST lost its peg. The fall of Terra has had widespread effects on the entire crypto industry – in this case, while the network was halted it would have been impossible for Lido users to recover their stETH.
Until stETH is trading at a discount, holders can redeem their stETH for more ETH compared to their initial deposits, meaning there would not be enough ETH in the pool to back all holders’ stETH.
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:
Now we find out Do Kwon was behind another failed stable coin Basis Cash. What a sh*t show.. https://t.co/3czPMvd9Ro
As Crypto News Australiareported 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:
This advice honestly comes from a good place, if you need that money get it out of there soon.There's nothing preventing UST from going to $0.01, it's what happened to the last algo stable he made called basiscoin.Not trying to FUD, just honest advice. https://t.co/FuLS0vSDfL
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:
An $18 billion stablecoin is losing its dollar peg with all the magical chaos of algorithmic stables, with a dash of Bitcoin systemic risk drama.
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:
"People are still processing this but this is the Lehman moment for crypto"
Hearing about a lot of funds possibly insolvent from Luna meltdown
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.
The sudden de-pegging of TerraUSD (UST) and the associated breathtaking decline of Terra (LUNA) over the past few days has triggered huge falls across the wider DeFi market, extending beyond those projects directly linked to the Terra ecosystem.
While projects built on Terra have been hardest hit, the damage has spread widely. DeFi tokens on virtually all blockchains are now seeing sizeable declines, even if they have no direct link to the Terra ecosystem:
1/ Extreme volatility produced a series of collateral effects across the Terra ecosystem, primarily derived from the short-term peg deviation of $UST and its impact on the volatility of $LUNA and levers of the Terra protocol. There’s a lot to unpack, so let’s dive in 👇
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 24, 2021
Terra-based DeFi Projects See Massive Declines
According to CoinGecko, the native token for Anchor Protocol (ANC), the largest DeFi protocol in the Terra ecosystem, is down over 90 percent since May 7, falling from US$2.14 to US$0.19 at the time of writing.
Other prominent Luna-based DeFi projects have also taken huge hits. Since May 7 the native token of Astroport (ASTRO), an automated market maker protocol, has dropped 89 percent and Mars Protocol (MARS), an on-chain credit protocol, is down almost 65 percent.
At the time of writing the native cryptocurrency of the Terra blockchain itself, LUNA, is down an astonishing 99.6 percent since May 7, trading at a mere US$0.29. Just over a month ago it hit its all-time high of US$119.18.
The Luna Foundation Guard, the group tasked with stabilising UST’s value, is currently seeking an additional US$1 billion capital to attempt to restore the stablecoin’s peg and potentially save the Terra ecosystem from complete collapse – a goal that is, sadly, beginning to look unachievable:
An $18 billion stablecoin is losing its dollar peg with all the magical chaos of algorithmic stables, with a dash of Bitcoin systemic risk drama.
Contagion Spreads to Connected Blockchains and Beyond
Assets from the Cosmos ecosystem have also seen large declines due to their integration with Terra through the Interblockchain Communication Protocol. CoinGecko shows that since May 7, ATOM is down about 47 percent, while DeFi tokens Mirror Protocol (MIR) and Osmosis (OSMO) are down 73 percent and around 50 percent respectively.
Virtually all DeFi projects across all blockchains have been negatively impacted by this ongoing collapse. According to data from DeFi Llama, total value locked (TVL) across the entire DeFi market has dropped more than 21 percent in the past 24 hours and, since April 4, TVL is down over 48 percent – now sitting at US$120.17 billion, down from US$231.5 billion.
Of the top 10 DeFi projects listed on DeFi Llama, every one has seen seven-day losses of TVL in excess of 27 percent:
7-day losses of TVL experienced across the board. Source: DeFi Llama
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:
Close to announcing a recovery plan for $UST. Hang tight.
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:
The details I have heard but might not be final:
– Jump, Celsius and Jane St. committed already, Alameda not yet – targeting $1B – $1.5B raise – 50% discount to LUNA spot with 1yr lock + monthly linear vest over 1yr – total of ~$700M in commitments as of morning https://t.co/BtqJrF0eqM
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:
Terra USD (UST), the world’s largest and most controversial algorithmic stablecoin, lost its peg to the US dollar this past weekend which has continued into the week, causing LUNA to tumble by as much as 56 percent in a day.
LUNA US dollar price (7 days). Source: CoinMarketCap
UST Tokenomics Explained
UST relies on LUNA to keep its price pegged to the US dollar via a set of on-chain mint and burn mechanisms. In brief, it works as follows:
Terra maintains UST’s peg of USD through an elastic monetary policy enabled by its dual, UST-LUNA token model. When the value of a unit of UST is above the USD peg, users are incentivised to burn LUNA and mint UST. When the value of a unit of UST is below the USD peg, users are incentivised to burn UST and mint LUNA. During times of UST contraction, LUNA valuation decreases, and during times of expansion, it increases. LUNA is the variable counterpart to UST. By modulating supply, LUNA’s valuation increases as the demand for UST increases.
The de-pegging appeared to commence shortly after a series of significant withdrawals on the Anchor Protocol, a lending market offering high yields to users who deposit UST:
Massive withdrawals from Anchor Protocol past hour, frequency increasing
There's only $300MM left of exit liquidity left on pool 53 before BTC peg
In addition, a large amount of UST was also withdrawn from Curve, a decentralised finance (DeFi) protocol allowing users to swap between stablecoins. There was also evidence of a single wallet dumping US$85 million of UST on ETH and US$108 million on Binance:
i'm curious which fund uses a base account to manage $200M of assets https://t.co/ogJ39kU2FJ
— larry – $LUNA $OSMO validator #IBCgang (@larry0x) May 7, 2022
The initial depeg was seemingly defended by Jump Capital, who earlier this year bailed out victims of the US$320 million Wormhole exploit. However it didn’t stop there as overnight, UST’s peg continued its freefall, reaching as low as 0.73 to the US dollar on Binance at the time of publication.
In response, the Luna Foundation Guard has deployed some of its BTC and UST reserves, although it claims that it hasn’t been sold but rather lent to market makers:
1/ The LFG Council just voted to deploy 1.5B in capital (0.75B in BTC, 0.75B in UST) to allay market concerns around UST. Some more context on why and how: https://t.co/TfaAPkzgUJ
There are a lot of moving parts to this story and the saga is clearly far from over. We’re seeing UST undergo a massive crisis of confidence and at this stage it’s too soon to tell whether it will recover. Current signs are ominous and if UST fails, it’s likely to spread contagion throughout the broader stablecoin market.
Let’s take a closer look at today’s altcoins showing breakout signals. We’ll explain what the coin is, then dive into the trading charts and provide some analysis to help you decide.
1. Terra (LUNA)
Terra LUNA is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems. According to its whitepaper, Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin, and offers fast and affordable settlements. Terra’s native token, LUNA, is used to stabilise the price of the protocol’s stablecoins. LUNA holders are also able to submit and vote on governance proposals, giving it the functionality of a governance token.
LUNA Price Analysis
At the time of writing, LUNA is ranked the 8th cryptocurrency globally and the current price is US$88.83. Let’s take a look at the chart below for price analysis:
LUNA showed significant strength in the face of a mostly bearish altcoin market, rallying over 105% during Q1.
The price is currently retracing from resistance near $116.90, just below the all-time high. Bulls might begin eyeing entries near $85.00, which will soon be near the 18 EMA and between the 61.8% and 78.6% retracement levels of the last leg upward.
A deeper retracement might reach an inefficient zone and the 40 EMA under the last daily swing low, between $82.44 and $79.10. A move below this low suggests a more bearish shift in market structure. If this shift occurs, it could create a short setup to target possible support at the upmove’s accumulation zone, near $74.41.
While the price is retracing, $96.44 offers the closest probable resistance at the yearly open. Just above, near the March monthly open, the consolidation lows near $102.69 are also a reasonable candidate for resistance.
If the price breaks through these resistances, the significant resistance at $108.69 might also break and allow LUNA to set new monthly highs. However, bulls should keep in mind that the overall market is mostly bearish, decreasing the chances of a massive bullish breakout. If the price does break the all-time high and enter discovery, overlapping extensions near $123.40 offer a possible significant target.
2. Dydx (DYDX)
DYDX is a governance token that allows the dYdX community to truly govern the dYdX Layer 2 Protocol. By enabling shared control of the protocol, DYDX allows traders, liquidity providers, and partners of dYdX to work collectively towards an enhanced protocol. DYDX enables a robust ecosystem around governance, rewards, and staking, each designed to drive future growth and decentralisation of dYdX, resulting in a better experience for users.
DYDX Price Analysis
At the time of writing, DYDX is ranked the 165th cryptocurrency globally and the current price is US$4.50. Let’s take a look at the chart below for price analysis:
DYDX consolidated between $4.18 and $6.26 with the bulk of the volume concentrated in the lower half of the range. The price does not indicate a clear longer-term direction yet as stop orders build on both sides of the range.
Range traders will likely take profits or sell near $4.92. A stop run and swift rejection above $5.34 could provide a more favorable risk-to-reward entry for bears. An old 4h gap around $5.85 might cap this stop run.
Bulls will likely accumulate more long positions on a run below the relatively equal lows near $4.38. Little exists below the current range to identify precise support levels. However, the area between $4.30 and $4.25 could also give support during a deeper stop run.
If the price does break out decisively to the upside, the swing high at $6.10 provides a reasonable target. The highs and daily resistance levels between $6.27 and $6.40 may provide a second target.
3. Secret (SCRT)
Secret SCRT is the native coin of the Secret Network, a decentralised network for private/secure computation. Nodes on the network (known as secret nodes) can perform generalisable computations over encrypted data, which allows smart contracts (known as secret contracts) to use private and sensitive data as inputs. Our focus is on computational privacy, not just transactional privacy. Developers can build decentralised, privacy-preserving “Secret Apps” on the network. The privacy functionality of the Secret Network is critical for many fields, including decentralised finance, Web3, machine learning, access control, and many more.
SCRT Price Analysis
At the time of writing, SCRT is ranked the 95th cryptocurrency globally and the current price is US$4.57. Let’s take a look at the chart below for price analysis:
SCRT‘s 109% rally from its late December lows has retraced 70% and is entering higher-timeframe support.
An area from $4.45 to $4.10, near the low of Q4’s bullish leg and highs of early 2021’s consolidation, could provide some support.
However, relentless selling suggests that the price may continue dropping into a thinly traded area between $3.92 and $3.67, which has confluence with the 78.6% retracement of the previous Q3-Q4 rally.
Any retracement upward might meet resistance near $5.12, which has confluence with the 18 EMA and old resistance.
A stronger push through the probable resistance near $5.34 could reach $6.10, where the price consolidated over an old high. However, this may not happen until the next bullish cycle.
Close above, a zone beginning near $6.28 may provide some resistance, with more sensitivity near $6.80.
These coins have high liquidity on Binance Exchange, so that could help with trading on AUD/USDT/BTC pairs. And if you’re looking at buying and HODLing cryptos, then Swyftx Exchange is an easy-to-use popular choice in Australia.
