Mooners and Shakers: Terra’s LUNA tanks; CPI inflation data brings more volatility
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Another day, another crypto fire sale. Is the Terra blockchain and its DeFi ecosystem dead? It fell off a cliff today (again), so that ain’t good. Meanwhile, the latest CPI inflation data for the US has added some extra flavour.
Terra’s governance token LUNA further collapsed today in an apparent death spiral that, on the surface, looks to be unfixable. And needless to say, it’s giving algortihmic stablecoins a pretty bad look in general. (Note, this doesn’t include fiat-collateralised stablecoins such as USDC and USDT.)
The protocol’s stablecoin UST (currently about US 40c) has completely de-pegged from the US dollar and confidence in the Terra network, and its founder Do Kwon, would seem to be shot, judging by reactions on Twitter.
Okay, so it might be tempting fate to sound so deterministic, as Kwon has actually now outlined a plan for recovery (see his tweet below) and perhaps that shouldn’t be written off just yet. But… crivens… sentiment for this project sure is dire right about now.
Here’s what we know…
• The algo stablecoin TerraUSD (UST) lost its dollar peg on Sunday, amid a US$84m UST sell-off, and has been in a desperate fight to reclaim parity ever since. It’s day four of its de-pegging and by far the worst so far, with the token sinking to as low as US 30c a short time ago.
• Meanwhile, the Terra (LUNA) token shed more than 96% in value over the past 24 hours, even plummeting below US$1 for a while (69c). Just one month ago, it was soaring at more than US$119.
• UST and LUNA are tied together in a dual-token system that is designed to maintain a stable price pegged to the US dollar. UST enters circulation by burning $1 worth of LUNA to mint one UST. UST exits circulation by burning one UST to mint one LUNA.
• Do Kwon acknowledged a removal of a good deal of liquidity from Curve took place – one of the largest liquidity pools for UST.
• A plan from Terra’s Luna Foundation Guard (LFG) to lend US$1.5 billion worth of Bitcoin to help UST regain its dollar parity was enacted. It seemed to be briefly working, with more capital apparently ready to be deployed by Kwon.
• But things since spiralled amid a huge loss of confidence in the Terra ecosystem as panic-stricken UST, LUNA and Anchor Protocol (ANC) DeFi users/holders rushed for the exits in droves.
• Some are blaming the root cause of the de-pegging on high-level market manipulation – perhaps by extremely large Wall Street players. We don’t know if that’s the case, just that it’s a theory being bandied about. The rumour was retweeted by the founder of Cardano, Charles Hoskinson, earlier today but has since been deleted.
So here's the word on the street on Luna pic.twitter.com/fhjnsJc9mu
— Charles Hoskinson (@IOHK_Charles) May 11, 2022
• Meanwhile, here’s the latest from Do Kwon – a lengthy Twitter thread outlining a potential recovery plan…
6/ Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg. There is no way around it.
We propose several remedial measures to aid the peg mechanism to absorb supply:
— Do Kwon 🌕 (@stablekwon) May 11, 2022
Kwon has outlined several ideas to “absorb the supply” and bring back the UST dollar peg. Absorbing the supply – doesn’t sound great for LUNA holders in the short term, which Kwon acknowledges, stating: “Naturally, this is at a high cost to UST and LUNA holders, but we will continue to explore various options to bring in more exogenous capital to the ecosystem & reduce supply overhang on UST.”
The under-fire DeFi founder added: “As we begin to rebuild UST, we will adjust its mechanism to be collateralized.”
That sort of sounds like he could be looking to adjust to a model that’s more in line with fiat/assets-backed stablecoins Tether (USDT) and USDC, although it remains to be seen in what capacity exactly.
— Michaël van de Poppe (@CryptoMichNL) May 11, 2022
Don't buy a crypto that's nuked 90% in a few days
That's not a "dip" or a "pullback"
— xCæsar 🩸 (@PARABOLIT) May 10, 2022
The crypto market price action was already churning this way and that (mostly that) today (UTC and EDT), but here’s something we’d been waiting for that’s definitely added some more spice to the recipe.
The latest Consumer Price Index (CPI) US inflation data is in and, at 8.3%, it’s a little bit higher than had been widely predicted. Some prominent analysts (Forbes, MarketWatch and others) had been expecting 8.1%.
The initial reaction to the new level, pre-Wall Street market open, was actually a brief Bitcoin and crypto market dump, with the OG crypto sinking down towards US$29k.
— Crypto Rand (@crypto_rand) May 11, 2022
However, the 8.3% figure, while still very high in full context, is actually lower than the last percentage the CPI gave us, based on the annual inflation rate to March, which came in at 8.5%.
The upshot there is that the inflation rate may have peaked – a potential positive for markets, meaning the US Fed might ease up on its hawkish stance on interest-rate hiking from here.
It’s speculative but a possibility and something that might well be giving markets a little shot in the arm as we speak (see Bitcoin below).
With the overall crypto market cap at roughly US$1.45 trillion, down about 4.8% since this time yesterday, here’s the current state of play among top 10 tokens – according to CoinGecko.
So, yes, the market is generally down from this time yesterday – an absolute horror day for crypto. The market has now bled roughly US$800 billion over the past month, with about half of that happening since Friday.
But Bitcoin (BTC) has currently pulled itself back up from the sub-30k canvas and is throwing a few left jabs, keeping its guard up around US$31.5k.
And that appears to be in direct response to: A) the possible inflation-peaking narrative mentioned above, and B) the US dollar (DXY) dipping very slightly over the past 24 hours. (Bitcoin digs a dipping dollar.)
How long this little reprieve will last, we’re obviously keeping tabs on. Can it turn into something more sustainable? Is this the bottom or even the “generational V-shaped bottom” Rekt Capital was yesterday throwing out some hopium for? Sorry, our crystal ball is in for repairs.
In the meantime, though, there are other coins on that top 10 table, and some of them are still having a shocker over the past 24 hours. Dogecoin (DOGE) and Solana (SOL) are both down more than 16%, while Cardano (ADA) and XRP are both around negative 9.5%.
It probably just proves, once again, that if you’re going to HODL any other crypto than a stablecoin that’s actually proven itself to be stable (e.g. USDC), then the “safest” bets are still Bitcoin and Ethereum (ETH).
Genuinely amazed Bitcoin & Ethereum are holding these levels.
— Ben Simpson (@bensimpsonau) May 11, 2022
Sweeping a market-cap range of about US$11.2 billion to about US$606 million in the rest of the top 100, let’s find some of the biggest 24-hour gainers and losers at press time.
• Maker (MKR), (market cap: US$1.29 billion) 20%
This is kind of interesting. Just one coin in this category is “pumping” right now, and we normally give you the top five.
MKR is the governance token used by the MakerDAO protocol and is used to manage the platform’s decentralised, algorithmic, but multi-collateralised stablecoin DAI. It appears as if UST’s de-pegging dramas have sent a good deal of business over to this more experienced competitor.
i think the appeal of MKR as a real "decentralized" stablecoin has caused this move, given how UST has collapsed in the most spectacular fashion
once the newcomers figure out why the old timers have been exiting this for 3 years straight, its back to regular programming i guess https://t.co/lAbDEu3aWi
— 찌 G 跻 じ Goblin King of the scam bots (@DegenSpartan) May 11, 2022
• Terra (LUNA), (mc: US$2.34 billion) -93%
• TerraUSD (UST), (mc: US$7.33b) -43%
• Osmosis (OSMO), (mc: US$715 million) -34%
• Fantom (FTM), (mc: US$975m) -34%
• ApeCoin (APE), (mc: US$1.86b) -30%
Moving below the crypto unicorns (in some cases well below), here’s just a selection catching our eye…
• Reflexer Ungovernance Token (FLX), (market cap: US$36 million) +19%
• Flex Coin (FLEX), (mc: US$358m) +8%
• Bitkub Coin (KUB), (mc: US$364m) +7%
• Everscale (EVER), (mc: US$326m) +4%
• Kin (KIN), (mc: US$38m) +3%
• Astroport (ASTRO), (mc: US$31m) -84%
• Kujira (KUJI), (mc: US$6.7m) -74%
• Orion Money (ORION), (mc: US$3.5m) -69%
• Anchor Protocol (ANC), (mc: US$101m) -68%
• TombShares (TSHARE), (mc: US$36m) -51%
Coinbase shares fell to new lows Wednesday, signaling investor skepticism about the prospects of the crypto exchange in a bear-market.
— Bloomberg TV (@BloombergTV) May 11, 2022
Someone is def manipulating
— Ash WSB (@ashwsbreal) May 11, 2022
Would love to be proven wrong about some of these worries, but I highly doubt we have heard the end of the second & third order effects of this collapse.
Not your keys, not your coins.
— Dylan LeClair 🟠 (@DylanLeClair_) May 11, 2022
Hold on… PlanB’s popped back up in our feed again. Yep, there are still hopium-supplying, diehard bulls running around here and there on Crypto Twitter.
Time for some hopium.
We have been in 30k-60k range for 1.5yrs now. But the first time we were at 30k (Dec 2020) BTC was overbought (weekly RSI ~90). Second time at 30k (Jul 2021) BTC market was neutral (RSI ~50). Now at 30k BTC is oversold like peak covid fear Mar 2020 (RSI 34). pic.twitter.com/0gRQnXmZCL
— PlanB (@100trillionUSD) May 11, 2022
— naiivecat (@naiivememe) May 11, 2022
Q: Why will BITCOIN win? A: BITCOIN will win because America is led by the 3 STOOGES. Stooge #1 President Biden. Stooge #2 Secretary of Treasury Yellen. Stooge #3 Fed Chairman Powell. I trust BITCOIN not the 3 Stooges.
— therealkiyosaki (@theRealKiyosaki) May 11, 2022