Main navigation

Terra Foundation Created "Death Spiral" on Its Own Stablecoin, According to Willy Woo

Tue, 05/17/2022 - 12:50
article image
Arman Shirinyan
LFG killed its own creation because of flawed design
Terra Foundation Created "Death Spiral" on Its Own Stablecoin, According to Willy Woo
Cover image via

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

Read U.TODAY on
Google News

Leading on-chain analyst Willy Woo has highlighted a major flaw in Terra's UST design that may have potentially created a "death spiral" for both LUNA and UST assets.

Woo saw the main flow in the backing mechanism in which Luna Foundation Guard is pledging to sell its BTC holdings in favor of UST, which should have increased the value of the stablecoin and not leveled any pressure on Luna.

But the reality is not even close to what should have happened on paper. Luna Foundation Guard held billions worth of BTC that it immediately dumped on the bleeding market, creating a horror show for market makers and investors.

The additional selling pressure from LFG caused a crash in BTC, which in turn dragged the entire market with it, including LUNA. With rising Bitcoin dominance on the market, Luna continued its fall, which practically meant entrance into a death spiral in which LFG had to sell more BTC and Luna would drop dragging UST with it.

Woo's point was that LFG's actions were counterintuitive and sped up the de-peg because of LUNA's backing mechanism.

Charles Hoskinson Backs up His Predictions, 4 Million Assets Were Issued on Cardano Ecosystem

A less counterproductive and potentially correct way of handling the situation was not the immediate dump of BTC on the market, but ‌a slow and steady inflow of funds into UST, which should have created less pressure on the market, and on Luna in particular.

At press time, Luna has lost approximately 100% of its value, falling far below one cent. As for algorithmic stablecoin UST, it trades around $0.1 and needs to gain around 1,000% to return above the peg threshold.

article image
About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.