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LUNA UST Collapse Explained – Crypto Grizz

i’ve slept about five hours in the last

haven’t showered so apologize for that
but i felt the need to talk about luna
and especially the ust collapse what
happened how i personally incurred crazy
losses and the rumors swirling around
that this is some kind of intentional
market manipulation and also i have an
announcement to make at the end of this
tons of people’s lives and
undoubtedly hurt the entire crypto
market and you’ll see what i mean in a
i i really don’t even want to be
recording this video so let me just give
you let me just give you the the
essentials first so ust it’s a stable
coin it’s supposed to be pegged to the
this happens through arbitrage trading
where investors essentially trade ust
for luna or vice versa to keep that
price right at one dollar now typically
this works it’s had a few slip ups in
the past but nothing it hasn’t recovered
every time there’s been a slip up it’s
been because you know the market tanks
or something like that but these things
are made to withhold market events so
typically it’s fine well
as you’re aware i’m sure ust is now
trading at far less than a dollar around
50 cents at the time of this recording
and it’s been as low as 29 cents now the
worst part is that people buy and invest
in ust and other stable coins as a bit
of a shelter from volatility and risk
you park your money there when you’re
trying to be safe like that’s supposed
the best way to visualize this is like
extreme inflation which real inflation
is pretty bad today also but inflation
that doubles overnight so coffee was
three dollars yesterday well it’s six
dollars today and there’s a chance it
could be twelve dollars tomorrow this is
essentially what happened to every
single ust holder and there’s millions
of holders this is this is huge so what
well at the beginning of the month uh
was the most popular lending platform on
the planet switched their rate structure
here you could lend out the ust
stablecoin token for around 20 apy crazy
rates the problem is that this was more
of an introductory rate to get people in
and you know build up excitement around
this ecosystem rates would be lowered
they were burning a ton of cash and this
couldn’t go on forever which is totally
fine if cash ran out rates would just
drop but your deposit would would have
no issues whatsoever well the beginning
a new rate structure was enacted that
would make rates more variable depending
on demand within that protocol rates
were expected to lower by about 1.5
percent per month for a few months until
that stability was found and then they
weren’t burning so much cash so this
started and the expectation was that
people who had money deposited on this
anchor protocol earning interest would
leave some people would and and the
exchange would be spending
less money well the opposite happened
deposits hit a record high in early may
after that switch to around 18 billion
dollars but again this wasn’t the end of
the world i personally kept an eye on it
but i wasn’t exactly worried about this
because again the money runs out it’s
fine however we’re in a touchy market
right now stocks are going down cryptos
everything there’s a ton of fear on
everything everything having to do with
investing people in the general market
began to sell cryptos including the one
luna’s price caused investors to be
concerned about its ability to back the
value of this now massive ust token it’s
a top 10 token now some investors began
selling their ust and this caused a ton
of downward pressure on ust because
algorithmic it can go down in value this
took it off of that one dollar peg so it
went from one dollar and around may 7 to
again this wasn’t the end of the world
stable coins fluctuate even usdt
fluctuates a little bit just recently
ust was trading at a dollar a one no one
battered i it was totally fine so things
were a little bit touchy but so was the
entire market so this didn’t seem like
that big of an issue really that is
until monday when the fed announced the
interest rate hike and this caused
stocks and cryptos to tumble
dramatically and almost instantly people
worried about further losses in the
market began selling including the luna
token and ust so this caused a kind of
negative flywheel where luna’s price
decreases further and remember luna is
backing ust so people get even more
worried that the value behind this
stable coin is crumbling this means even
more sell-offs happening and you can see
this kind of negative effect happens
because of these sell-offs ust falls
off of its one dollar peg selling off
more and more because now people are
freaking out you know it hits 98 cents
people like i’m done with this you can
see that negative effect compounding and
we can see the market cap of ust
dropping dramatically right at this time
this is where prices begin to absolutely
free fall and i’m not going to lie
a very panic inducing time i saw this
happen live i was on the chart for luna
and ust i saw luna live dropped by 50
and what felt like minutes i watched the
price for ust which is supposed to be a
dollar drop down to 80 cents and then 70
and then 60. and there’s nothing i could
do about my deposits at this point the
network was congested by the time i
could get any money onto an exchange
this thing could hit zero evaporating my
account anyone who was using leverage
was very likely liquidated especially by
this point if you had even 10 leverage
it’s not looking good and that’s a lot
of people but what’s especially
before i ever bought a single dollar of
ust personally i did an insane amount of
diligence to determine if this risk
reward made sense i understood the
tokenomics and the key risk factors i’m
diversified i even chatted with three
different crypto lending hedge funds to
look at their risk analysis to like see
if this actually makes sense for me i
really like to do the research before i
buy anything the consensus seemed to be
that ust would be totally fine as long
as luna doesn’t drop more than about
like 70 which seemed like a reasonable
margin to er margin of error to me well
guess what happens luna dropped 70
percent and then some surprisingly it
didn’t go to zero the first night but i
was still looking at larger losses than
i’ve personally ever seen before this
was money i’d sitting on the sidelines
waiting for good deals while the market
was just being crazy i was trying to be
relatively safe with it so i keep my
money in not wanting to you know be the
guy who sells a dollar for 50 cents
because you know that sounds ridiculous
and uh and i know that’s perfectly
possible for the price to go back up to
one dollar i mean with an understanding
of how this price goes back to a dollar
i even decided to try some arbitrage i
should be able to essentially buy ust
for 70 cents or whatever it’s at and
then sell it to tara for a dollar in
instant 30 profit whatever that
this was a major problem though because
they have a safety mechanism that makes
it less profitable to do arbitrage the
more that it’s being done so it creates
this kind of like cool down period
within the system now in normal times
this is pretty useful but right now this
means my one dollar tokens are stuck at
far less than one dollar for the
meanwhile the backing luna is getting
pummeled increasing the risk more and
more as the price of luna goes down this
risk goes up plus that cooldown period
just isn’t happening fast enough this is
insanely bad like the crypto version of
so the next day comes and i know that
we’re completely walking on eggshells
here if the crypto market drops further
we’re screwed absolutely a total bank
run but if we can be calm prices will go
back up to a dollar maybe in a few days
maybe a week at most so i monitor the
market and sell a little bit at like 90
cents but things seem to be healing up
so the plan was just to hang tight just
a little while longer just see where
prices began to tank further and further
hitting eventually around 20 cents for
ust a dollar now worth 20 cents so
thankfully i didn’t panic sell during
but i do have sales around 50 cents on a
dollar they would do that i guess me
by far the most painful sales of my
entire life so not only am i part of one
of the worst events black swan events to
happen in crypto but now i’m thinking
about how i i feel obligated to be
transparent and talk about it like
someone has to talk about these events
and you know thinking about this
if i bought a volatile asset and it
dropped 50 percent sure i’d be salty
about it but i think to myself like well
you know that’s the risk you take buying
a volatile asset but when you buy
something that’s supposed to be the safe
bet you know reasonably safe anyways
it’s not perfectly safe you just feel
betrayed when it drops and i’m sure
there’s a lot of people who kind of feel
the same way as i do about this you feel
dumb you think that you could have done
something different you think you should
have done something different
but the more i think about it i really
don’t think anyone who lost on ust
should feel like they did especially
that wrong i mean this is the definition
of a black swan event this is the lehman
brothers collapse of crypto
it’s not just degenerates who were part
of this it’s not a hundred thousand
percent apy yes it’s high if you don’t
get me wrong like it’s a hint of
degenerate for sure but we’re talking
hedge funds we’re in this retirement
savings there was a lot of smart people
who would invest in this who got
every single person invested
just didn’t properly calculate risk
myself included and that’s the mistake
that we made and for those saying you
this is 20 it’s unsustainable what do
you expect you’re absolutely right but
so are lending rates on literally every
single crypto platform every exchange
that pays eight to twelve percent flat
interest on stable coins is losing money
in order to get people in the door this
is no different no one would expect an
18 billion dollars to just essentially
evaporate in two days and that’s what
happened now i’m going to talk about
uh the few what the future may hold here
but first i want to talk about the
rumors that this may be a coordinated
attack now we don’t have proof on this
but i think it’s important to understand
what’s being said anyways so marketing
conditions market conditions absolutely
amplified this entire issue but there
are rumors that it might have been
spurred by blackrock and citadel they
borrowed a hundred thousand bitcoin from
gemini and the story goes that they then
swapped 25 percent of that into ust they
then reached out to do quan the founder
of tara saying that they wanted to buy a
large chunk of ust and would sell
bitcoin at a discount in order to do so
and they wanted to do it directly so
they didn’t hurt ust too much supposedly
he took the bait lowering the supply of
available ust again this has not been
confirmed blackrock in citadel then sold
all the bitcoin and ust that they held
causing both markets to fall sharply at
creating this panic or at least
amplifying a panic that was happening
once price decreased they then buy back
their bitcoin that they loaned out at a
lower price and make a tidy profit on
now the unfortunate thing
is that if this is true it’s totally
legal they were simply exploiting a
market that had a major weakness it’s
extremely unfortunate but
it’s a weak market and like there’s not
some people did call that this could
and i even did to a certain degree but
we shouldn’t be too hard on ourselves
because if you look hard enough you will
literally find a prediction for anything
there’s two major concerns that i want
to point out and then my announcement
tara is voting to tweak the algorithm of
ust to get the one dollar peg algorithm
to work faster getting the price back to
normal sooner this is good but the issue
here is that will be at the expense of
luna it will cause a lot of downwards
even given this change i foresee a ton
of volatility in ust before it gets
fixed if it can even get fixed the
stress is not over if you still hold ust
in my opinion none of this is financial
this is extremely bad for the entire
crypto market both crypto lending and
stable coins have had a close eye
from regulators for the last year or so
i’m willing to bet that this is the nail
in the coffin for both this event is
exactly why markets get regulated look
at the bank runs of 1907.
black wednesday the 08 crisis all of
these things people have their fun they
make their money markets get hot and
eventually the music stops then
regulators need to come in and try to
prevent it from happening again but then
there always will be a new market that
crops up and the exact same thing
and we saw this coming i highly
recommend watching my last two videos
after this one is about governments
attempting to replace bitcoin and stable
coins and the reasons to do so and the
other is about how the anchor protocol
is dying off like i couldn’t have i
didn’t plan it but like those two videos
unfortunately the only thing that we can
do now is learn from this so personally
i’ve learned that i’ll diversify even
further i thought an eight percent
was you know risk i was willing to take
and i learned that even that can be too
much now i did want to do something
because i know the community is hurting
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that’s all i can really do at this point
it’s a sad it’s a sad day for crypto and
we just need to stick together so thanks

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