The crypto market is highly volatile. It can give you crazy returns as well as push you into the dump in a second. Recently, something similar happened when the cryptocurrency LUNA reached historic lows. Its price has dropped 90% from its all-time highs.
What makes it worse is, that most people feel that this dump is rumored to orchestrate an economic hit. Most rumors suggest that Citadel Capital could be responsible for it after Janet Yellen announced a report on stable coins.
A historic down run of Terra
Most of the market is trending downward and it is not because of the usual Bitcoin and Ethereum. It is Terra’s LUNA and UST that have taken the center stage. Both these tokens have suffered significant price drops in just a few hours.
Janet Yelle, the treasury of the US Secretary feels that it was important for the Congress to pass this new legislation regulating stable coins the day after the meltdown of UST, which is an algorithmic Stablecoin supported by Terra
Terra had plenty of market clout going into this week. The flagship token of Terra was LUNA, and in April it had a $40 billion market capitalization. LUNA continued to grow and skyrocketed in that period because of which Terra’s president and self-styled “Master of Stablecoin”- Do Kwon earned a reputation of a DeFi Star.
However, Terra promised to return 1 UST for $1 worth for LUNA which was a flimsy reed to build an essential goal. Although, when LUNA plummeted as the cryptocurrency sell-off intensified, all bets were off for UST. Also, it slid pegged up by 40% on Monday.
Kwon took a bet in mid-march with a Twitter user Sensei Algod who self-described himself as a “semi-retired degen”. The bet was that LUNA will be worth more than $88 by mid-march 2023. Each of them placed a wager of one million dollars.
Sensei Algod has also called LUNA and UST a Ponzi scheme that can only function as long as there is demand for its tokens as compared to the supply. This is the reason why Do Kwon accepted his challenge.
Is LUNA’s drop an economic hit?
A lot of netizens, investors, and crypto experts have taken the fall of LUNA to their hearts. Most people feel that Citadel Capital was behind it as the hedge fund which is associated with the shorting of GameStop in 2021, might be involved in a short bet against LUNA and the mass selloff of UST.
A report also claims that Citadel borrowed 100k BTC to use it in a bet against UST. Blackrock and Citadel both had taken a 100k USD loan in Bitcoin and swapped 25k of their BTC for UST. Rumors suggest that the strategy was devised in advance of LUNA’s fall.
Both the interested parties contacted Du Kwon at the right time and offered to exchange a large quantity of BTC for UST. Once Kwon accepted the offer, it was all over for Terra.
Moreover, when UST hit a record low of $.30, the market went into a frenzy and many CEOs, crypto enthusiasts, and investors took to Twitter to express their panic. The trend continues on Twitter and many experts are even assessing which crypto firms have sizable stakes in UST and LUNA. and how drastic the impact will be on them.
However, it looks like Stablecoins cannot rely purely on the algorithmic mechanism to resist heavy volatile scenarios. They need to structure around tangible collaterals that ensure a floor for Stablecoins token holders when an organic stabilization mechanism cannot be implemented.
There are different versions and rumors on a float about LUNA’s drop. For now, the investors can only wait for the market to stabilize progressively.