😱 Terra’s Stablecoin Structure Unravels on a Wild Day

Hello Defiers! Here’s what we’re covering today: Terra’s Travails Terra’s Stablecoin Structure Unravels on a Wild Day Terra’s UST Rebounds to Around $0.90 After Depegging by 40% News Compound Treasury Draws a Rating From S&P in Groundbreaking Move Me...


Hello Defiers! Here’s what we’re covering today:

Terra’s Travails



DeFi Primers


🎙Listen to the exclusive interview with Diego Fernandez:




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Terra Drama

😬 Terra’s Stablecoin Structure Unravels on a Wild Day

LUNA's Collapse Could Consign UST to Long List of Failed Algo Stablecoins

By Samuel Haig


WEAKNESS The vulnerability in UST was plain to see from the outset. It was staring the market in the face. The stablecoin’s promise to redeem 1 UST for $1 worth of LUNA invited trouble.

TUMBLE It was a trade that required a leap of faith in LUNA’s resilience rather than the unambiguous support of hard reserves such as the dollar. And on May 9, that imbalance walloped investors when Terra’s algorithmic stablecoin tumbled 40% to $0.61.

PANIC While on Tuesday UST rebounded to about $0.90, the episode has delivered a blow to UST’s credibility, and perhaps that of algorithmic stablecoins in general. The drama punctuated a day that seemed to finally dispel any hope that investors could dodge a punishing bear market. What happens next with Terra, a DeFi darling for the last nine months, will be an important bellwether in a market that’s lost confidence and is sown with panic.

TRIGGER UST’s slide was triggered when Terra’s native LUNA token cratered and could no longer support its sister token. The troubles also followed $500M worth of UST positions being sold via the Terra-based Anchor protocol on March 7, which appeared to shake confidence in LUNA and its broader ecosystem.


UST/USD. Source: CoinGecko.


📈 Terra’s UST Rebounds to Around $0.90 After Depegging by 40%

LUNA's Crash Rocks Terra Ecosystem

By yyctrader


NEWS Terra’s stablecoin UST, the poster child for decentralized assets tied to the US dollar, rebounded sharply on Tuesday as it climbed to $0.92 after plunging 40% below its dollar peg, to $0.60, on Monday.

FREE-FALL LUNA remains in free-fall, javing lost half its value in the last 24 hours in mid-morning trading London time.


Luna price. Source: CoinMarketCap

ALGO STABLECOIN UST has been the most successful example of an algorithmic stablecoin, or a stable asset which depends on an internal algorithm that manages its supply and demand to maintain its peg. Developers have tried to create these self-regulating assets for years, with many crashing and burning along the way.


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DeFi + TradFi

🏦 Compound Treasury Draws a Rating From S&P in Groundbreaking Move

Ratings Giant Did Deep Dive on DeFi Protocol

By Owen Fernau


INTEGRATION The capital markets, including crypto, may be a train wreck at the moment. That hasn’t stopped DeFi protocols from seeking deeper integration with the financial world, and vice versa.

RATING In the latest indication of this melding, Compound Treasury, the institutional fixed-yield product, has received a B- credit rating from S&P Global Ratings, one of the Big Three credit ratings agencies along with Moody’s and Fitch Group.

CRITICAL ROLE Ratings agencies play a critical role in establishing the risk-reward ratio at the heart of the global credit markets. This development constitutes the “first institutional decentralized finance offering to be rated by a major credit rating agency,” according to Compound Finance, the lending protocol from which Compound Treasury partially derives its 4% yields.


NFT Deals

🖼 Meta’s Instagram Partners With Polygon In NFT Push

By Jason Levin


DEAL Instagram users will be able to post and share NFTs as soon as this week. Meta’s NFT move will be powered by Ethereum Layer 2 scaling solution, Polygon, and available to select creators, the company revealed in a video posted by CEO Mark Zuckerberg.

AUGMENTED REALITY Zuckerberg said the social media giant will start with Instagram and then move to Facebook, with potentially some of Meta’s other products included down the line. He additionally mentioned creating augmented reality NFTs for Instagram stories via Spark AR, a Meta-owned augmented reality effects software.

EXPLOSIVE NFTs have become a multi-billion dollar industry, worth $41B in sales last year according to Chainalysis. Now Meta’s 3.64 billion monthly users will have access to this explosive corner of crypto, potentially adding fuel to an already explosive market.


Market Action

😳 LUNA Loses Half its Value in 24 Hours as DeFi Tokens Crater

Avalanche Also Plunges as Bears Tighten Grip

By Samuel Haig


BELOW $100B DeFi assets are taking a beating. The combined capitalization of DeFi tokens has fallen below $100B for the first time since last August as cryptocurrencies crater.

HARDEST HIT Terra’s LUNA token has been the hardest hit. After rallying to all-time highs of $115 just five weeks ago, LUNA is currently changing hands for just $33, a 71% plunge, according to data from CoinGecko. The long-anticipated depegging of Terra’s leading stablecoin, UST, accelerated LUNA’s losses yesterday.


The LUNA/UST trade. Source: CoinGecko.

PEG UST fell as much as 40% against the dollar as UST hodlers capitulated in response to LUNA’s capitalization dipping below that of UST. The stablecoin previously sought to maintain its peg by allowing holders to sell or purchase $1 worth of LUNA in exchange for 1 UST, incentivizing arbitrageurs to step in and stabilize price action. But with users unable to redeem the token for $1 worth LUNA amid the depegging, UST’s price quickly dived.


The Tube

📺 Quick Take: Is it over? 3 reasons why markets are crashing and what you can do


🔗 Crypto Market Crash Leads to $1B in Liquidations, Majors Lose Pivotal Support: CoinDesk

Crypto futures racked up more than $1 billion in liquidations in the past 24 hours amid weak market sentiment and major assets losing pivotal support levels.

🔗 Binance suspends LUNA and UST withdrawals amid market turbulence: The Block

Crypto exchange Binance has suspended withdrawals of LUNA and UST tokens as the Terra-based stablecoin struggles to recover its peg to the US dollar.

🔗 Raoul Pal explains the UST (Terra) MELTDOWN: Bankless

An interview with the crypto investor on this week’s big news.


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🧑‍💻 ✍️ Stories in The Defiant are written by Owen Fernau, Samuel Haig, Jason, Levin, DeFiDad, and yyctrader, and edited by Edward Robinson, yyctrader, and Camila Russo. Videos are produced by Robin Schmidt, Alp Gasimov and Daniel Flynn. Podcast is led by Camila, edited by Alp.

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