The Terra \/ Luna \/ UST collapse keeps on generating headlines. This time, we\u2019ll use the data in ARK\u2019s \u201cThe Bitcoin Monthly\u201d report to establish its impact on the bitcoin ecosystem. Remember that the non-profit organization LFG, AKA the Luna Foundation Guard, accumulated BTC to defend UST\u2019s peg to the dollar. In a then-delated May interview, Terra\u2019s Do Kwon said that they were trying to get to $1B in BTC so that \u201cbesides Satoshi, we will be the largest single holder of Bitcoin in the world.\u201d<\/p>\n
Related Reading | Terra Beats Tesla As Second-Largest Corporate Bitcoin Holder After $1.5B Purchase<\/p>\n
Do Kwon also proclaimed, \u201cwithin the crypto industry, the failure of UST is equivalent to the failure of crypto itself.\u201d At one point, it appeared that BTC and UST\u2019s destinies were inextricably linked, but the bitcoin network absorbed the collapse nearly unscathed. Let\u2019s look at ARK\u2019s numbers and try to figure out how it did it.\u00a0<\/p>\n
Terra, The Largest L-1 Blockchain Failure Ever<\/p>\n
At this point, everybody knows what happened with Terra. Nobody knows how it happened, though. Was it a coordinated attack or did the natural market\u2019s forces trigger the death spiral event? We wouldn\u2019t know, but the fact of the matter is that the UST de-pegged from the dollar, and this caused a bank run that the Anchor protocol couldn\u2019t handle. The whole situation created the death spiral and the eventual demise of the algorithmic stablecoin and its twin, LUNA.<\/p>\n
How big was the collapse? According to ARK\u2019s report:<\/p>\n
\u201cIn addition to causing the crash in UST and Luna, we believe Terra is the largest layer-1 blockchain failure in crypto history, wiping out a combined $60 billion of market capitalization between UST and Luna.\u201d<\/p>\n
Huge in size by any metric, but, how does it compare to previous crypto collapses? The only comparable one was \u201cthe Mt. Gox hack that stole 5.7% of total crypto market cap in 2014, Terra\u2019s collapse destroyed roughly 2.7% of crypto\u2019s total market capitalization.\u201d The Mt. Gox hack almost destroyed the bitcoin network at a time when it was more vulnerable. The Terra collapse felt like a breeze in comparison, but, as the numbers show, the impact was significant.\u00a0<\/p>\n\n
BTC price chart for 06\/07\/2022 on Eightcap | Source: BTC\/USD on TradingView.com
\nHow Did The Terra Collapse Affect BTC?<\/p>\n
Besides the LFG foundation reportedly selling its 80K BTC, the collapse created extreme selling pressure on bitcoin. According to the report, \u201cexchanges recorded net inflows of 52,000 bitcoin, the largest daily inflow in BTC terms since November 2017 and the largest inflow ever in USD terms.\u201d These are notable numbers.\u00a0<\/p>\n\n
Bitcoin Net Flows To and From Exchanges | Source: ARK\u2019s \u201cThe Bitcoin Monthly\u201d<\/p>\n
According to the bitcoin blockchain, the account associated with \u201cLFG currently holds 313 BTC, down from 80,934 BTC held prior to Terra\u2019s unraveling\u201d. Did they sell the rest, though? Nobody knows for sure. Back to the report:\u00a0<\/p>\n
\u201cTo backstop UST\u2019s peg, The Luna Foundation Guard (LFG) reportedly sold most of its ~80,000-bitcoin reserves, contributing to this record inflow.\u201d<\/p>\n
Surprising even hardcore bitcoiners, the network resisted this massive sell-off without breaking a sweat. Sure, bitcoin\u2019s price suffered, but the blow wasn\u2019t even close to being fatal. And ARK\u2019s prediction reflects that fact, \u201cnow decoupled from the Terra blockchain, bitcoin\u2019s selling pressure should subside, yet contagion in the crypto markets is still inconclusive.\u201d Why? Because \u201cbitcoin\u2019s more secure and conservative blockchain should gain market share.\u201d<\/p>\n
Are Algorithmic Stablecoins Even Possible?<\/p>\n
To answer this we\u2019ll quote NYDIG\u2019s report \u201cOn Impossible Things Before Breakfast,\u201d which comes with the subtitle, \u201ca post-mortem on Terra, a pre-mortem on DeFi, and a glimpse of the madness to come.\u201d As the titles gave away, NYDIG believes that not algorithmic stablecoins nor DeFi as it currently stands are possible. Why? Well\u2026<\/p>\n
\u201cNo matter how well intentioned, all algorithmic stablecoins will fail and the vast majority \u2013 possibly all \u2013 of DeFi\u2019s current versions will fail, where \u201cfail\u201d here means not gaining sufficient critical mass to matter, being hacked, blowing up, or being altered by regulation to the point of non-viability. In the end, the Terra project could control the supply of its money, but it couldn\u2019t make its people value it. A printing press was the only (non)answer. Sound familiar? Lacking a lender of last resort, DeFi (re)creates the problems solved by central banks. Bitcoin solves the problems created by central banks.\u201d<\/p>\n
Related Reading | TerraLabs Sold Over 80,000 BTC To Rescue Its Stablecoin<\/p>\n
As it usually happens, we could summarize this whole article with the old adage: \u201cBitcoin fixes this.\u201d<\/p>\n
Featured Image by Louis Maniquet on Unsplash | Charts by TradingView<\/p>","protected":false},"excerpt":{"rendered":"
<\/p>\n
The Terra \/ Luna \/ UST collapse keeps on generating headlines. This time, we\u2019ll use the data in ARK\u2019s \u201cThe Bitcoin Monthly\u201d report to establish its impact on the bitcoin ecosystem. Remember that the non-profit organization LFG, AKA the Luna Foundation Guard, accumulated BTC to defend UST\u2019s peg to the dollar. In a then-delated May interview, Terra\u2019s Do Kwon said that they were trying to get to $1B in BTC so that \u201cbesides Satoshi, we will be the largest single holder of Bitcoin in the world.\u201d<\/p>\n
Related Reading | Terra Beats Tesla As Second-Largest Corporate Bitcoin Holder After $1.5B Purchase<\/p>\n
Do Kwon also proclaimed, \u201cwithin the crypto industry, the failure of UST is equivalent to the failure of crypto itself.\u201d At one point, it appeared that BTC and UST\u2019s destinies were inextricably linked, but the bitcoin network absorbed the collapse nearly unscathed. Let\u2019s look at ARK\u2019s numbers and try to figure out how it did it.\u00a0<\/p>\n
Terra, The Largest L-1 Blockchain Failure Ever<\/p>\n
At this point, everybody knows what happened with Terra. Nobody knows how it happened, though. Was it a coordinated attack or did the natural market\u2019s forces trigger the death spiral event? We wouldn\u2019t know, but the fact of the matter is that the UST de-pegged from the dollar, and this caused a bank run that the Anchor protocol couldn\u2019t handle. The whole situation created the death spiral and the eventual demise of the algorithmic stablecoin and its twin, LUNA.<\/p>\n
How big was the collapse? According to ARK\u2019s report:<\/p>\n
\u201cIn addition to causing the crash in UST and Luna, we believe Terra is the largest layer-1 blockchain failure in crypto history, wiping out a combined $60 billion of market capitalization between UST and Luna.\u201d<\/p>\n
Huge in size by any metric, but, how does it compare to previous crypto collapses? The only comparable one was \u201cthe Mt. Gox hack that stole 5.7% of total crypto market cap in 2014, Terra\u2019s collapse destroyed roughly 2.7% of crypto\u2019s total market capitalization.\u201d The Mt. Gox hack almost destroyed the bitcoin network at a time when it was more vulnerable. The Terra collapse felt like a breeze in comparison, but, as the numbers show, the impact was significant.\u00a0<\/p>\n
BTC price chart for 06\/07\/2022 on Eightcap | Source: BTC\/USD on TradingView.com
\nHow Did The Terra Collapse Affect BTC?<\/p>\n
Besides the LFG foundation reportedly selling its 80K BTC, the collapse created extreme selling pressure on bitcoin. According to the report, \u201cexchanges recorded net inflows of 52,000 bitcoin, the largest daily inflow in BTC terms since November 2017 and the largest inflow ever in USD terms.\u201d These are notable numbers.\u00a0<\/p>\n
Bitcoin Net Flows To and From Exchanges | Source: ARK\u2019s \u201cThe Bitcoin Monthly\u201d<\/p>\n
According to the bitcoin blockchain, the account associated with \u201cLFG currently holds 313 BTC, down from 80,934 BTC held prior to Terra\u2019s unraveling\u201d. Did they sell the rest, though? Nobody knows for sure. Back to the report:\u00a0<\/p>\n
\u201cTo backstop UST\u2019s peg, The Luna Foundation Guard (LFG) reportedly sold most of its ~80,000-bitcoin reserves, contributing to this record inflow.\u201d<\/p>\n
Surprising even hardcore bitcoiners, the network resisted this massive sell-off without breaking a sweat. Sure, bitcoin\u2019s price suffered, but the blow wasn\u2019t even close to being fatal. And ARK\u2019s prediction reflects that fact, \u201cnow decoupled from the Terra blockchain, bitcoin\u2019s selling pressure should subside, yet contagion in the crypto markets is still inconclusive.\u201d Why? Because \u201cbitcoin\u2019s more secure and conservative blockchain should gain market share.\u201d<\/p>\n
Are Algorithmic Stablecoins Even Possible?<\/p>\n
To answer this we\u2019ll quote NYDIG\u2019s report \u201cOn Impossible Things Before Breakfast,\u201d which comes with the subtitle, \u201ca post-mortem on Terra, a pre-mortem on DeFi, and a glimpse of the madness to come.\u201d As the titles gave away, NYDIG believes that not algorithmic stablecoins nor DeFi as it currently stands are possible. Why? Well\u2026<\/p>\n
\u201cNo matter how well intentioned, all algorithmic stablecoins will fail and the vast majority \u2013 possibly all \u2013 of DeFi\u2019s current versions will fail, where \u201cfail\u201d here means not gaining sufficient critical mass to matter, being hacked, blowing up, or being altered by regulation to the point of non-viability. In the end, the Terra project could control the supply of its money, but it couldn\u2019t make its people value it. A printing press was the only (non)answer. Sound familiar? Lacking a lender of last resort, DeFi (re)creates the problems solved by central banks. Bitcoin solves the problems created by central banks.\u201d<\/p>\n
Related Reading | TerraLabs Sold Over 80,000 BTC To Rescue Its Stablecoin<\/p>\n
As it usually happens, we could summarize this whole article with the old adage: \u201cBitcoin fixes this.\u201d<\/p>\n
Featured Image by Louis Maniquet on Unsplash | Charts by TradingView<\/p>\n
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