June 27, 2022

Dubai Week

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The full story of the latest cryptocurrency crash

The full story of the latest cryptocurrency crash

Dubai: Kansas Al Jubair
Cryptocurrency markets have been in a free fall this month and their suffering has been exacerbated by the devastation of the $ 60 billion project, which critics describe as a “Ponzi scheme” that is a form of fraud that does not exist and is optimistic about success. Reinforced by paying quick returns to initial investors, from the money invested by subsequent investors.
The project in question is the Terradolars, a fixed currency linked to the US dollar that its supporters believed would reverse traditional payment systems around the world, but it was destroyed within days as investors panicked and tried to withdraw their money. The collapse of the entire cryptocurrency market and its market value destroyed more than $ 400 billion.
What happened in particular makes it difficult to explain the rapid rise and fall of the Terra currency without prior knowledge of the “blockchain” that many of its supporters hid behind to clarify and use special terms to dismiss its obvious flaws. Here is a brief description: Tera is a blockchain like Bitcoin and Ethereum, and its first product was the USST Staplecoin, which is linked to the US dollar and is used by cryptocurrency traders as a safe haven during fluctuations in these “decentralized” markets. Instead of turning their highly volatile assets into expensive and hard-earned currency, traders trade them against staple coins.
Some staplecoins derive their value from being fully supported by stocks; That is, if investors decide to get out of it, in principle Staplecoin should have enough money to pay the company all at once. The UST, on the other hand, is an algorithm stable currency that relies on index and fixed market activity to maintain its peg against the dollar.
Over the past six months, investors have been buying this staplecoin for one important reason: to make a profit from a borrowing and lending platform called Anchor, which has yielded 20% return on anyone who buys UST and lends to the protocol.
When the opportunity was announced, many critics immediately compared it to a Ponzi scheme, saying that it was mathematically impossible for Terra to offer such a high return to all of its investors. Terra team members also agreed, but compared the cost to the cost of marketing to create awareness; This is exactly what Uber and Lift did when they initially offered the deepest discounted delivery service.
But some blockchain experts, last week, said rich investors made a gamble in which they borrowed large amounts of bitcoin to buy UST, with the lucrative goal of short-selling when its value is depreciated.
This devalued the dollar, which was followed by a surge in banks due to the late exit of investors who had taken interest through the anchor. This led to the fall of the so-called “death spiral” currency Luna. UST is equal to 12 cents and “Luna” is equal to fractions of a penny after touching $ 116. In April.
Thus, the savings of many Terra and Luna investors were gone within a few days, some of whom were psychologically affected by this trauma, and one of them wrote on one of the platforms: “I am suffering from a very dark and very psychological tragedy. Life. I still can not believe I lost $ 180,000.” Prior to the Terra crash, cryptocurrency values ​​had already plummeted, in part due to the Federal Reserve raising interest rates.
When he and his support organization, the Luna Trust Guard, recorded more than $ 3 billion to protect its dollar bank, it put downward pressure on the market, with other large investors selling their shares of Bitcoin and Bitcoin hitting its lowest level since December. 2020, and the trick that Kun did to save his currency did not work.
The impact affected the entire cryptocurrency system, and ether fell below $ 2,000 for the first time since July 2021, as companies sold about $ 30,000 worth of ether in an attempt to link the UST to the dollar. As more and more investors tried to convert their Ethereum-based staplecoins, this large number of transactions resulted in higher fees, which increased the financial loss.
For Coinbase, one of the largest and most popular cryptocurrency companies in the world, it fell 35% last week, and the non-fungal token system has dropped 50% in the last seven days in terms of sales volume. The total loss to CryptoSlam is in the hundreds of billions of dollars.
Many worry that the collapse of TERA will be the first strand to trigger the long-awaited “crypto winter” in which key investors will lose interest and values ​​will remain low for months.