16 May 2022 16:25, UTC
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Altcoin depreciated last week, losing more than 99% of its value. Experts told whether such levels can be considered profitable for investment and why the asset will not return to its previous values
Luna Foundation Guard (LFG) has lost about $3 billion as a result of attempts to peg TerraUSD (UST) back to the U.S. dollar, according to The Block analyst Larry Cermak. Before the altcoin collapse, the total value of coins in the fund reached $3.1 billion; by now, it has fallen to $268.3 million, and excluding the project’s own tokens, to $87 million.
Following the release of LFG’s reports, the value of UST and Luna tokens continued to fall. The price of Stablecoin collapsed to $0.05 and Luna to $0.00013 (as recently as last week it reached $80). The company stressed that it plans to use the remaining assets to compensate the losses of holders of small amounts in UST.
UST lost its peg to the U.S. dollar on May 8, when there was a sharp outflow of assets from Anchor Protocol, as a result of a drop in the deposit yield to 17.87%. LUNA, which is used to stabilize the UST price, also suffered. The altcoin issue was raised to 6.9 trillion tokens.
The risks of non-recovery of the token price are quite high, according to Nikita Zuborev, senior analyst at Bestchange.ru. He explained that the value erosion occurred against the background of uncontrollably bloated token issuance, which in theory should have compensated for the depreciation of UST collateral, but only intensified the fall. Also the reputation of the development team was seriously damaged.
“Even after a single instance of such a massive failure, the credibility of their future projects will be undermined, and with the “information war” that has been waged around Do Kwon, this effect will be multiplied. In addition, journalists managed to find out about the direct links of the Terraform Labs team with the previously also “bankrupt” algorithmic stablcoin Basis Cash (BAC),” explained Zuborev.
He recalled that the project CEO himself said it was unlikely he could “restore the entire ecosystem” and suggested the community would knowingly abandon UST price parity with the US dollar, which at best would result in multi-million dollar losses for steblecoin holders. Any such plan would not bring any serious results to the parent asset of Project Terra (LUNA), the expert added.
According to him, Terra’s price can be expected to recover to some degree once active ecosystem recovery actions begin. At the very least, by drastically reducing issuance, reallocating priorities, and using unspent bitcoin reserves from the Luna Foundation Guard stabilization fund, a serious technical boost to the LUNA price could be created, and some late investors could earn several tens of percent, assuming the selling power of early investors (who lost over 99 percent) does not outperform the purchases.
“In any event, such a ‘plume’ of defrauded investors will prevent the project from growing steadily in the long run under any recovery plan,” Zuborev said confidently.
Alfacash director Nikita Soshnikov, who also sees no long-term prospects for Luna, agreed with him. According to Soshnikov, in this case one can only buy a “knowingly failed project” in the hope of then selling to “hamsters” who are still in denial and hope for a revival of the project.
“The reputation of Luna and UST is irrevocably lost, too much negative information about the founders, their manipulations, previous projects appeared in the information field,” emphasized the specialist.
He called Terra “the most hated” project in cryptospace. According to Soshnikov, the failure of altcoin had a negative impact on the market as a whole, so there is no hope for a rapid growth of bitcoin, and the industry will see new legislation tightening the regulatory oversight of stablcoin.
The idea of maintaining the decentralized stabilitycoin rate with cryptocurrency reserves has expectedly failed, according to ENCRY Foundation co-founder Roman Nekrasov. He noted that the tokenomics on which Luna’s value was based, including the Anchor protocol, which promised 20% p.a. for UST stacking, also raises questions.
“I see no prospect of recovery in Luna and UST, the confidence of market participants has been undermined. The collapse of UST triggered a domino effect and collapse of the crypto market, pulling other cryptocurrencies and probably will be the first in a series of bankruptcies of other stackcoins,” predicted Nekrasov.
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