{"id":7022,"date":"2022-05-11T07:20:29","date_gmt":"2022-05-11T07:20:29","guid":{"rendered":"https:\/\/newmoneyreview.com\/?p=7022"},"modified":"2022-05-24T13:49:07","modified_gmt":"2022-05-24T13:49:07","slug":"terra-bailout-fails","status":"publish","type":"post","link":"https:\/\/newmoneyreview.com\/index.php\/2022\/05\/11\/terra-bailout-fails\/","title":{"rendered":"Terra bailout fails"},"content":{"rendered":"

Attempts to recapitalise the third-largest dollar stablecoin failed dramatically last night, sending Terra (UST) and its sister token Luna into a death spiral.<\/p>\n

After Terra lost its dollar peg on Monday<\/a>, trading as low as 60 cents, its market price stabilised at around 90 cents for most of Tuesday.<\/p>\n

The price recovery followed an intervention from the Luna Foundation Guard (LFG), a reserve fund set up in January to help defend the stablecoin\u2019s market value.<\/p>\n

By 08.00 UTC on Wednesday May 11, Terra was trading at only 40 cents in the dollar<\/p><\/blockquote>\n

On Monday the LFG Council, which governs the reserves, said in a series of tweets<\/a> that it had decided to lend $750M worth of bitcoin to OTC trading firms \u201cto help protect the UST peg\u201d.<\/p>\n

The LFG said it had loaned out another $750m in Terra (UST) to trading firms \u201cto accumulate bitcoin as market conditions normalise\u201d.<\/p>\n

On Tuesday at 18.36 UTC, cryptocurrency publication the Block reported<\/a> that the LFG had been reaching out to large crypto investors in the hope of raising an additional $1bn to shore up UST. The Block cited three sources with knowledge of the process.<\/p>\n

Larry Cermak, vice president of research at the Block, later tweeted<\/a> that cryptocurrency trading firms Jump and Jane Street had committed to the bailout earlier on Tuesday, together with crypto lending platform Celsius.<\/p>\n

LFG, said Cermak, was targeting a $1-1.5bn capital raising by means of a private issuance of the Luna token at a 50 percent discount to its market value.<\/p>\n

Around $700m in commitments had been collected as at the morning of Tuesday, said Cermak.<\/p>\n

However, later that day, the Terra stablecoin price broke down again as market participants lost faith in the prospects of a rescue.<\/p>\n

By 08.00 UTC on Wednesday May 11, Terra was trading at only 40 cents in the dollar.<\/p>\n

\"\"<\/p>\n

Meanwhile Luna, the free-floating cryptocurrency token which is supposed to stabilise Terra\u2019s market price at $1, has lost almost all its value in a dramatic collapse.<\/p>\n

By 08.00 UTC Luna was trading at $5, an 85 percent price collapse over 24 hours and a 96 percent decline from an all-time high of $119.50, reached just over a month earlier.<\/p>\n

The Luna crash has wiped out around $40bn in market capitalisation, hitting many retail investors who had joined in the cryptocurrency’s price rise earlier this year.<\/p>\n

\"\"<\/p>\n

Attempts on social media by the chief executive of Terraform Labs, which issues both Terra and Luna, to stop the selling were futile.<\/p>\n

\u201cGetting close … stay strong, lunatics\u201d<\/p><\/blockquote>\n

\u201dClose to announcing a recovery plan for $UST. Hang tight,\u201d Do Kwon tweeted<\/a> at 15.32 UTC on Tuesday 10 May.<\/p>\n

\u201cGetting close … stay strong, lunatics,\u201d he tweeted at 23.09<\/a>.<\/p>\n

However, in the subsequent hours, the prices of UST and Luna both plummeted.<\/p>\n

Sign up here<\/a> for the New Money Review newsletter<\/em><\/p>\n

Click here<\/a> for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes<\/em><\/p>\n

Related content from New Money Review<\/em><\/span><\/p>\n

Third-largest stablecoin loses its dollar peg<\/a><\/p>\n

Terra depletes reserves in stablecoin panic<\/a><\/p>\n

Breaking the buck<\/a><\/p>\n

Cordon off and shut down DeFi<\/a><\/p>\n

Why settlement matters<\/a><\/p>\n

Unstable DeFi could trigger wider crash<\/a><\/p>\n

Hedge fund\/crypto cocktail could be lethal<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Attempts to recapitalise the third-largest dollar stablecoin failed dramatically last night, sending Terra (UST) and its sister token Luna into a death spiral. 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