Terraform Labs Algorithmic Stablecoin Stutters

UST Falls After Losing Peg Twice in 48 Hours

May 11, 2022

MUSHROOM ALPHA

Happy Wednesday! We are calling this week the most exciting in crypto! Push forward over the hump with this crypto catch-up.

Today's Topics:

  • Terraform Labs Works to Stabilize UST’s Rapid Fall

  • Going To The Movies? Pay With Crypto!

  • Tech Giant Looks Forward to the Metaverse

  • Quick Headlines

Terraform Labs Works to Stabilize UST’s Rapid Fall

Terraform Labs is working quickly to “repeg” their algorithmic stablecoin after UST plummeted down to as low as $0.30 according to Coinbase. The sharp decline occurred soon after the token briefly lost its $1 peg over the weekend and touched $0.985.

Let’s go through a quick recap of how UST works, why the crash happened, and what Terraform Labs is doing to fix it.

What Is An Algorithmic Stablecoin?

An algorithmic Stablecoin is a stablecoin that does not have fiat or asset backing that is used as a peg. Instead, algo stables use code to regulate the peg, offering the entire goal of cryptocurrency, true decentralization.

In this case, TerraUSD (UST) is the stablecoin and Terra (LUNA) is the governance token that helps keep UST pegged to $1 USD.

How Does The Terra Protocol Work?

The Terra Protocol involves the burning and minting of these two tokens based on the scenario to ensure that UST stays pegged to $1. Neither token has a maximum supply which allows infinite scaling.

We found a great way of explaining why this is important to algo stables in this video. Think of the US Dollar before WWII, the dollar was backed by gold. As the US rapidly expanded, there was no longer enough gold(finite supply) to back the dollar. The vision of an algo stable is to outgrow the US dollar in the same fashion.

Why Did UST Fail?

It is believed that a coordinated attack against UST may have occurred as ~$300 million UST was dumped into the market by a single player; This caused a chain reaction with many holders dumping as destabilization started to occur.

UST backers then had to sell mass quantities of BTC and ETH to buy UST and stabilize at the peg. As everything started to slide, holders of UST and LUNA panicked and began dumping their tokens and attempting to move into other stablecoins - The response was so bad that many exchanges began to halt UST and LUNA trades to slow down the bleeding.

What is Terra Doing to Fix the Peg?

The Luna Foundation Guard (LFG) announced that they were loaning out $1.5 billion of its bitcoin reserves to market makers so that they can help defend UST’s peg. After Do Kwon, Terraform Labs CEO, tweeted, “Deploying more capital - steady lads.”, an additional ~$1.3 billion was transferred out of Terra’s wallet. 

They will likely be able to stabilize UST in the near future, but the community will need to reform trust in the project in order for it to succeed. A formal plan is set to be released soon.

This is an absolutely wild story - Be sure to follow along here.

Click to view the current price of LUNA and UST.

Going To The Movies? Pay With Crypto!

Late last year, AMC Theaters announced that they would be accepting bitcoin as a payment method online. Fast forward to today and they accept the following coins through Bitpay:

  • Bitcoin

  • Bitcoin Cash

  • Dogecoin

  • Litecoin

  • XRP

  • Ethereum

  • Shiba Inu

While just having the option to use cryptocurrency as a payment method is huge for integration into the “real world”, AMC had some exciting news last night from their 2022 Q1 earnings report. Adam Aron, CEO of AMC, stated that the addition of new payment methods such as Apple Pay, Google Pay, Paypal, and Bitpay, amounted to 35% of total online payments.

This is not the only push made by AMC to get into the crypto world. They began offering NFTs for things like watching a specific movie, holding AMC stock, or being a member of their premium program. The most recent NFT release was tied to box office powerhouse, The Batman.

Tech Giant Looks Forward to the Metaverse

Qualcomm, most well-known for their presence in the mobile phone space, has a bright outlook on the future of the metaverse. Qualcomm CEO Cristiano Amon stated, “It’s real, it’s going to be a very big opportunity. We started investing in fundamental technologies that allow the merger of physical and digital spaces over a decade ago.”

He also went on to say that the metaverse could be as big as mobile phones - This is a bold claim, but Qualcomm has been putting their money where their mouth is.

Earlier this year Qualcomm announced the “$100M Snapdragon Metaverse Fund”. They are focusing on Extended Reality (XR) technologies that are used in devices and programs with companies such as Meta and Microsoft. The goal of the metaverse fund is simple - fuel developers to build immersive experiences with VR, AR, and mixed reality.

We are excited to see what capabilities come out of the metaverse in the not so distant future.

Quick Headlines

Mark Cuban Says Commercial Smart Contract Adoption Next Market Driver Mark believes that businesses will seek benefits of smart contracts

Full-Cycle Web3 Ecosystem Enables Users to Build Their Metaverse Presence WeWay is trying to be the WordPress of the metaverse.

Funding News:

Stay strong and HODL on, Friday is near. Check back tomorrow for more crypto news!

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Disclosure: We are a newsletter for information only. We are not financial advisors nor do we claim to be. Consult your legal, investment or tax advisor. Crypto is risky. Do you own research.