The EPIC CRASH of Terra is not about it’s mechanism - it’s all about the operation.

In this thread, I’ll talk about the FUNDAMENTAL REASON OF CRASH.

1/ As you all know, the price of UST crashed for last few days. In my opinion, Terra’s price stabilizing mechanisms themselves were not the problem.

In fact, their oracle, onchain market, and Luna staking reward mechanisms are designed very carefully.
2/ Then what’s the problem? It’s their operation policies. TFL launched anchor protocol which gives 20% fixed earn rate, making over 70% of the UST supply reside in anchor deposits.

This means that the demand of UST is totally concentrated on one use-case (14B out of 17B).
3/ As there are more healthy use-cases using UST as a value of $1, the demand graph becomes smoother. On the other hand, if the demand is concentrated on a single use-case, the demand graph becomes stiffer, which is the case for UST.
4/ Stiff demand graph means high price volatility, which means UST had intrinsic weakness in price stability due to its concentrated demand.

Even with the slight depegging of UST would lead to large change in UST demand.
5/ This intrinsic weakness is the essense of UST crash. Anchor deposit nosedived only with slight depegging caused by some attacks, and accelerated the crash.
- 6/ Lesson learned:
- don’t boost the demand of stablecoin with a single unhealthy use-case. They can blow up with a slight depeg.
- mind the size of liquidity that the protocol can tolerate and coordinate the demand with the liquidity.

More from All

॥ॐ॥
अस्य श्री गायत्री ध्यान श्लोक:
(gAyatri dhyAna shlOka)
• This shloka to meditate personified form of वेदमाता गायत्री was given by Bhagwaan Brahma to Sage yAgnavalkya (याज्ञवल्क्य).

• 14th shloka of गायत्री कवचम् which is taken from वशिष्ठ संहिता, goes as follows..


• मुक्ता-विद्रुम-हेम-नील धवलच्छायैर्मुखस्त्रीक्षणै:।
muktA vidruma hEma nIla dhavalachhAyaiH mukhaistrlkShaNaiH.

• युक्तामिन्दुकला-निबद्धमुकुटां तत्वार्थवर्णात्मिकाम्॥
yuktAmindukalA nibaddha makutAm tatvArtha varNAtmikam.

• गायत्रीं वरदाभयाङ्कुश कशां शुभ्रं कपालं गदाम्।
gAyatrIm vardAbhayANkusha kashAm shubhram kapAlam gadAm.

• शंखं चक्रमथारविन्दयुगलं हस्तैर्वहन्ती भजै॥
shankham chakramathArvinda yugalam hastairvahantIm bhajE.

This shloka describes the form of वेदमाता गायत्री.

• It says, "She has five faces which shine with the colours of a Pearl 'मुक्ता', Coral 'विद्रुम', Gold 'हेम्', Sapphire 'नील्', & a Diamond 'धवलम्'.

• These five faces are symbolic of the five primordial elements called पञ्चमहाभूत:' which makes up the entire existence.

• These are the elements of SPACE, FIRE, WIND, EARTH & WATER.

• All these five faces shine with three eyes 'त्रिक्षणै:'.

You May Also Like