The crypto market has previously experienced tough times. However, the market condition for LUNA is reaching historic lows. LUNA’s price has dropped 90 percent from its all-time highs. What’s worse, the dump is rumored to be an orchestrated economic hit. Rumors have it that Citadel Capital could be responsible for the UST collapse after Janet Yellen announced a report on stablecoins.
Terra’s situation worsens as it nears a historic downturn
While the majority of the market is still trending downward, it isn’t on the usual suspects like Bitcoin and Ethereum. Instead, Terra’s LUNA and UST have taken center stage as both tokens have suffered substantial price drops in recent hours.
If the crypto industry wanted to show that stablecoins are a good investment, it did not do a good job on May 9. The U.S. secretary of the treasury, Janet Yellen, said it was important for Congress to pass new legislation regulating stablecoins the day after the meltdown of UST, an algorithmic stablecoin supported by Terra.
Going into this week, Terra had plenty of market clout. In April, its flagship token, LUNA, had a $40 billion market capitalization. As LUNA grew and skyrocketed, Do Kwon, Terra’s president and self-styled “Master of Stablecoin,” earned the reputation of a DeFi star.
However, Terra’s promise to return 1 UST for $1 worth of LUNA was a flimsy reed to build such an important goal. And when LUNA plummeted as the cryptocurrency selloff intensified, all bets were off for UST, and it slid its peg by 40 percent on Monday.
In mid-March, Do Kwon took a bet with pseudonymous Twitter user Sensei Algod, a self-described “semi-retired degen,” on whether LUNA would be worth more than $88 by mid-March 2023. Each placed a wager of one million dollars.
Sensei Algod called LUNA and UST a “Ponzi” that can only function as long as there is more demand for the tokens than there is supply, so Do Kown took the bet. However, at this time, Do Kwon’s $1 million wager against USD 1M doesn’t appear to be paying off because LUNA continues on a downtrend.
LUNA’s drop rumored to be an economic hit
The fall of LUNA has been taken to heart by netizens, investors, and crypto experts. It is rumored that Citadel Capital was involved in the UST collapse. The hedge fund, which is associated with the shorting of GameStop in 2021, may be involved in a short bet against LUNA and the mass selloff of UST that began this week.
A report claims Citadel borrowed 100K BTC and used it to bet against UST. Critics also point out that Janet Yellen recently published a paper about a stablecoin. Blackrock and Citadel, both of which had taken out a 100k USD loan in Bitcoin, swapped 25k of their BTC for UST. It is rumored that the strategy was devised in advance of LUNA’S collapse.
When the time was right, the interested parties contacted Du Kwon, CEO of Terraform Labs, with an offer. The two parties offered to exchange a large quantity of BTC for UST. Once Du Kwon accepted the offer, it was all but over for the corporation. From this point on, LUNA’s fall from grace began.
Du Kwon’s colossal selling lowered UST liquidity to an all-time low. As a result, Citadel and Blackrock dumped all of the UST and Bitcoin, resulting in significant slippage and triggering a cascade of compelled selling in both assets. Furthermore, rumors have circulated about Anchor’s involvement in a Ponzi scheme.
The debate about stablecoins peaked in recent months as the United States Treasury Secretary Janet Yellen stated that they “threaten financial stability.” The most serious concern for the crypto community prior to the TerraUSD de-pegging was Tether’s unclear reserves. However, UDT is currently trading at a significant discount against its dollar peg.
Crypto analysts have spoken on the subject. One of them, who is an unbridled believer in Bitcoin’s potential, opined:
Mark my words. The UST failure will be used as evidence by policymakers to regulate stablecoins to death and champion CBDCs. This is not good.
Yellen has repeatedly made clear that the value of UST is in freefall, allowing her to attack stablecoins. As seen in the video below, Yellen used the weakening price of UST to support her anti-stablecoin position before the Senate Banking Committee. Stablecoins have long been on Yellen’s radar.
Citadel has said that it wants to be a market maker in the crypto space, but there is no hard evidence to suggest that they are responsible for the current market crash. Another rumor is that Jump Capital, which supports Terra, is preparing a $2 billion bailout package for UST.
Whether or not this is actually the case, the notion of a bailout raises questions about Satoshi Nakamoto’s intentions when bank rescues were seen as part of Bitcoin’s creation. Is it any different than bank bailouts if stablecoins require hedge fund rescue?
After the market crash, Du Kwon has not given up hope. After an 18-hour wait during which LUNAs and Terrusd (UST) had a face-ripping drop, Kwon outlined what he hopes will be a rescue strategy for the Terra community.
Kwon informed netizens that his team would raise the starting pool from 50 million to 100 million special drawing rights (SDR) and decrease PoolRecoveryBlock from 36 to 18. This will boost minting capacity from $293 million to about $1.2 billion.
If UST reaches dollar parity and LUNA regains its all-time highs, it will be a remarkable crypto comeback of all time.