DeFi Insight: The Meltdown of Terra UST Stablecoin

Figure 1: Innovation vs Volatility in algorithmic stablecoins (Source: https://blog.kalinoff.com/)
Figure 2: TVL on Terra (source: https://defillama.com/chain/Terra)

The Meltdown

  • UST has experienced de-pegging twice before: in December 2020 and in May 2021.
Figure 2: UST price chart (Source: https://coinmarketcap.com/currencies/terrausd/ )
  • Back in July 2021, Terra protocol injected $70,000,000 UST into Anchor because it was at risk of running out of funds. This was a warning sign for investors who see Anchor’s yields as unsustainable long term. The news went unnoticed by many.
  • In March 2022, Terra announced the purchase of $10 Billion worth of Bitcoin. The idea was to have BTC serve as a reserve asset for UST. Terra was forced to sell their BTC in an attempt to save the peg. In the last few days, Luna Foundation sold all 42,530 of its BTC and pushed the BTC price to even lower levels which further dragged down the entire crypto market.
  • On April 1st 2022, Terra announced the 4pool. The 4pool was a new Curve pool composed of UST, FRAX, USDC, and USDT. At the time of the announcement, the 3pool on Curve was the dominant one, and Terra was about to migrate to the 4pool. Terra had to withdraw liquidity from the 3pool in order to transfer it to the 4pool. During that time, the UST peg was susceptible to attacks because of the low liquidity.
Figure 3: 4pool Curve Balance. (Source: https://dune.com/)
Figure 4: Binance UST/USDT order book.

Conclusion

The classification of UST according to the ITC:

Figure 5: The UST Tokenbase entry (Source: https://itin.itsa.global/YMJX3H8H5)

List of all Terra tokens:

Figure 3: Tokenbase list with all Terra tokens (Source: https://api.itsa.global)

The International Token Standardization Association (ITSA) e.V.

  • The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
  • The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to the market capitalization of classified tokens.
  • ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.

Remarks

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The International Token Standardization Association (ITSA) is a not for profit organization working on holistic market standards for the global token economy.

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International Token Standardization Association

International Token Standardization Association

The International Token Standardization Association (ITSA) is a not for profit organization working on holistic market standards for the global token economy.

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