12 May

“In what will surely be a historic week in stablecoin history, Terra’s LUNA, the currency that backs its dollar-pegged stablecoin UST, has slid beneath a dollar at the time of writing. No, we haven’t got our wires crossed. Terra’s LUNA – the formerly market-leading digital currency that was worth just over $119 in April – is trading at $0.85 at the time of writing.

It’s no ordinary crash, either. It’s in freefall. Earlier today, LUNA lost 32% of its value in the space of an hour. The news comes while Terra’s other flagship coin, UST, is trading under $0.40.

On Tuesday, a $1.5 billion loan from a Terra-centric non-profit organization called the Luna Foundation Guard (LFG) failed to buoy the stablecoin, which has since bottomed out at $0.30 this morning.

The event has been a catastrophic chapter in crypto history, and one that hasn’t been missed by regulators either.”

See Also: UST Falls to 35 Cents, Terra Futures See $106M in Liquidations
See Also: The LUNA and UST Crash Explained in 5 Charts
See Also: Crypto Twitter Reacts to UST Collapse and Market Meltdown
See Also: UST’s Do Kwon Was Behind Earlier Failed Stablecoin, Ex-Terra Colleagues Say

“The knock-on effect of the collapse of Terra (LUNA) and its TerraUSD (UST) stablecoin have spread wide across the cryptocurrency market on May 11 as projects with any kind of association with the DeFi ecosystem have seen their prices hammered.

The forced selling of the Bitcoin (BTC) holdings backing a portion of UST also influenced BTC’s current drop to $29,000 and analysts fear that DeFi platforms that have liquidity pools primarily comprised of UST and LUNA will collapse.

Projects with the direst of outlooks are those that are hosted on the Terra protocol including Anchor Protocol (ANC), Astroport (ASTRO) and Mars Protocol (MARS), which saw their token prices plummet more than 80% since May 4.

Assets in the Cosmos ecosystem were also hard hit by UST’s collapse. ATOM and other tokens like Mirror Protocol (MIR), Osmosis (OSMO) and Kava that utilize the Interblockchain Communication Protocol (IBC) corrected sharply due to their integration with Terra. The price declines for these assets was less extreme that those hosted on the Terra protocol, but their proxy to Terra has not protected them from contagion.

Maker (MKR) is the one bright spot to emerge in trading on May 11 as crypto traders now find themselves embracing Dai (DAI) as the “best” decentralized stablecoin option in the market. MKR price spiked 124% in trading on May 11, going from a low of $1,025 to an intraday high of $2,299.”

See Also: Cryptos Extend Losses as LUNA Plunges
See Also: Maker’s MKR Token Surges 30% and Stablecoin DAI Leapfrogs UST
See Also: ‘$DAI Will Die’ Tweet Twisted Back on Terra’s Kwon as UST Loses $1 Peg

“The European Commission is considering hard curbs on the ability of stablecoins to become widely used in place of fiat currency.

Under their plans, regulators could order the issuers of any stablecoin exceeding 200 million euros (US$211 million) and 1 million transactions daily to cease issuances until these figures come back below the threshold.

The European Parliament favors a softer approach that would see successful stablecoins reclassified and subject to oversight by the European Banking Authority.”

See Also: ‘Failure Should Be an Option,’ US Sen. Pat Toomey Says of UST Turmoil

“The price stabilization mechanism is absorbing UST supply. But the cost of absorbing so many stablecoins at the same time has stretched out the on-chain swap spread to 40%, and LUNA price has diminished dramatically absorbing the arbs.

The only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg.

Terra endorsed the community proposal “1164,” which proposes increasing the minting capacity of Terra’s LUNA from $293 million to over $1.2 billion. That means additional LUNA would be minted and sold in the market to try to bring UST’s peg back to $1. That is in addition to a separate proposal that aims to offer lower yield to users of Anchor.

See Also: Anchor Community Submits Proposal to Restore UST Peg
See Also: UST’s Bitcoin Reserve Too Late in Coming to Save Dollar Peg

“Following a productive meeting, we remain encouraged by our ongoing engagement with the SEC. At Grayscale, we intend to maintain an open dialogue with regulators and policymakers as we look ahead to July 6.

In a presentation made to the SEC at the recent meeting, Grayscale said converting its marquee product into an ETF would ‘protect investors and the public interest, allowing the product to better track net asset value while giving investors the freedom to invest in Bitcoin in a safe and secure manner.’ Additionally, said Grayscale, an ETF vehicle instead of the current trust structure would ‘allow better NAV tracking, reduce discounts and premiums, and unlock approximately $8B for investors.’

Additionally, asset manager Bitwise has a spot bitcoin ETF application pending review with the SEC, with a final deadline of June 29.”

See Also: Germany Won’t Tax Bitcoin, Ethereum Sold After One Year of Possession
See Also: Chairmen from the SEC and CFTC talk crypto regulation at ISDA meeting

“U.S. inflation slowed last month for the first time since November 2020. The consumer price index (CPI) dropped to 8.3% in April from a year earlier, down from 8.5% in March. Economists had estimated an 8.1% rate for April.

But core inflation, which excludes seasonally volatile food and energy prices, rose 0.6% from March, double the rate from the prior month and higher than the 0.4% clip that economists had forecast.

Bitcoin (BTC) was down 4.8% within minutes after the report was released.”

“Nubank, the largest digital bank in Brazil and Latin America, announced that it has partnered with Paxos to allow the bank’s customers to buy, sell and store [bitcoin and ethereum] directly. Nubank [also] announced it will allocate roughly 1% of its net assets to Bitcoin (BTC). Nubank is said to have more than 50 million customers in Brazil alone.

There is no doubt that cryptocurrencies are a growing trend in Latin America. We have been following the market closely and we believe that there is transformational potential in the region.

Meanwhile, a securities filing earlier this year revealed that Warren Buffett’s Berkshire Hathaway had purchased $1 billion in Nubank shares in the fourth quarter of 2021. The move is said to have given the Oracle of Omaha indirect exposure to the digital asset market.”

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