CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Regulator:

×
CySEC

Skilling Ltd, is regulated by the Cyprus Securities and Exchange Commission (CySEC) under CIF license No. 357/18

Continue
FSA

Skilling (Seychelles) Ltd, is authorized and regulated by the Financial Services Authority (FSA) under license No. SD042

Continue
Market Insights

Luna & the Terra attack

Blog Images - Skilling (2).png

Another action-packed weekend for crypto and the zeitgeist was dominated by a reported attack on Terra’s USD peg (UST), and by proxy on Luna.

There were signs of a momentum shift earlier in the week, when the 20 day moving average flipped from support to resistance around the 88 dollar level. Ever since, Luna’s been under pressure, and was trading right down at 56 dollars as Europe closed up shop on Monday…

Terra

Then things really kicked off. This is far more than a technical move. See, Luna is part of the Terra ecosystem, which also includes UST, a stablecoin designed to maintain parity with the US dollar. It’s essentially a currency peg designed to always trade at 1:1 (1 USD = 1 Terra).

Here’s a chart of UST vs USDT (Tether). The white line is 1:1 parity:

UST vs USDT

The peg failed, reportedly under selling pressure via the Curve & Anchor DeFi protocols, sending the UST stablecoin down to $0.60c.

Why does this matter for Luna?

The original Terra whitepaper is a great reference. From the conclusion:

We have presented Terra, a stable digital currency that is designed to complement both existing fiat and cryptocurrencies as a way to transact and store value. The protocol adjusts the supply of Terra in response to changes in demand to keep its price stable. This is achieved using Luna, the mining token whose stable rewards are designed to absorb volatility from changing economic cycles.

The design is such that Luna is always exchangeable for UST at 1:1, so it acts as a stabilisation buffer. Traders can constantly arbitrage minor fluctuations around the peg and harvest them for profit.

From the same whitepaper:

Luna also serves as the most immediate defense against Terra price fluctuations. The system uses Luna to make the price for Terra by agreeing to be counter-party to anyone looking to swap Terra and Luna at Terra’s target exchange rate.


More concretely:

  • When TerraSDR’s price < 1 SDR, users and arbitragers can send 1 TerraSDR to the system and receive 1 SDR’s worth of Luna.
  • When TerraSDR’s price > 1 SDR, users and arbitragers can send 1 SDR’s worth of Luna to the system and receive 1 TerraSDR.

The price of Luna has tanked by well over 50% since the peg came under stress, although there are early signs of possible buying interest down at $25.

Terra

After such a huge drop however, the market cap (via coinmarketcap) of Luna doesn’t even match the market cap of UST.

Luan vs UST

The Luna Foundation Guard has pledged to take action.

“The LFG Council has voted to execute the following:

  • Loan $750M worth of BTC to OTC trading firms to help protect the UST peg.
  • Loan 750M UST to accumulate BTC as market conditions normalize.

The traders will trade the capital on both sides of the market to help accomplish both #1 and #2, eventually maintaining parity of the LFG Reserve pool (denominated in BTC) as market conditions progressively stabilize.”

Whether this is enough to restore confidence in the project or merely temporary damage limitation remains to be seen.

Not investment advice. Trading cryptocurrency may not be available depending on your country of residence.

Related Articles

Stock of the week: Peloton

2022 has been a pretty hostile environment for investors. Most stocks are down on the year. Even titans like Google and ...

Challenges for the global economy

There are some enormous challenges facing the global economy right now. Many are unfamiliar challenges that have not bee...

Luna & the Terra attack

Another action-packed weekend for crypto and the zeitgeist was dominated by a reported attack on Terra’s USD peg (UST), ...

Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue

Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue