As Terra ecosystem’s UST stablecoin untethered over the weekend, LUNA slipped frantically as well, losing approximately 95% of its value.
The efforts to rescue UST continue as LFG – the entity that acts as a resolve protocol – emptied its treasury wallet of all its Bitcoin. Rumors are now circling that the organization wants to raise $1 billion to aid its freefalling project.
But what about the multi-million dollar bet Do Kwon made recently?
LUNA, which depends on TerraUSD, dived from $87 to the press price of $4.5 in less than a week. This may not be the best time to recall the bet placed by the outspoken founder of Terraforms Labs, Do Kwon.
Nearly two months ago, Kwon agreed to a $1 million bet against a community member – “Sensei Algod” whether LUNA’s price would be higher in a year, meaning – above $88. The founder later said yes to yet another wager by pseudonymous crypto trader “GCR,” only this time, the stakes were 10x higher. Soon, Kwon transferred $10 million worth of stablecoins to be held in escrow pending the outcome of the bet.
Following the latest turn of events, Sensei Algod said that even if the peg restores, the trust is still lost while questioning whether LUNA will ever recover from the crash. GCR, on the other hand, had proposed $50 million and $20 million bets shortly after the first one, but Kwon did not respond. Now, the user has updated the original bet – shorting LUNA for $10 million.
Cryptocurrency researcher, Hasu, who previously warned that undercollateralized stablecoins “cannot work,” said that as a stablecoin issuer, the moral choice will be to defend UST by holding the treasury, even if it means LUNA going to zero.
Despite the current bearish outlook, many believe that LUNA will spring back up. One such is the host of CNBC’s Crypto Trader, Ran Neuner, who tweeted,
“Every attack makes LUNA more resilient. It happened to BITCOIN many times in the early days. It’s part of the process!”
While algorithmic stablecoin has gained significant steam, it has also managed to draw attention among critics. Many belonging to the latter cohort believe that the problems with assets such as UST are obvious.
Primarily, the reasons are two – it’s not backed by a reserve, and specialized algorithms cannot always guarantee that the market works. Last year, billionaire Dallas Mavericks owner and investor on ABC’s “Shark Tank,” Mark Cuban, said he lost money when the algorithmic stablecoin IRON after it de-pegged from the US dollar following a major selloff by large investors. Kwon, however, is undeterred by these narratives.
Recent market conditions have put immense pressure on the TerraUSD peg. And what many feared eventually transpired. Not one but two major de-pegging events.
Critics noted that Terra’s contingency measures could add to the current sell pressure in the market and push the price further down. However, Kwon shared the founding partner at Delphi Ventures, Jose Macedo’s tweet that says, “LFG made UST more robust, but also temporarily more centralized.”