How the Luna Crash Unfolded
Good morning Lions I trust you have all been safe and well. So it's been almost a week since the Luna - UST peg broke and we've done some digging to get to the bottom of what happened. To be honest it wasn't all that hard all we had to do is follow Do Kwon's twitter profile and hindsight is a wonderful thing and in Luna's incident the writing was on Do Kwons Twitter account.
On the 6th of May Do Kwon purchased $US1.5 Billion in Bitcoinand he didn't do this on the market he purchased the Bitcoin of a private firm. For obvious reasons such a large purchase order would have greatly impacted the market and sent the price of Bitcoin soaring. Which in hindsigh would have been a better outcome.
The money being used to purchase the Bitcoin wasn't from capital raised it was gifted to Luna Foundation Guard straight from the liquidity pool.
This explains the all time highs and then lows right after it I guess.
Now that the firm has $US1.5 Billion worth of UST they begin searching for the many liquidity pools Do Kwon has established in an attempt to expand Luna. They begin dumping UST and buying back the Bitcoin for less than what they sold it to Kwon.
The selling of hundreds of Millions worth of UST causes a depeg which commences panic on the network. Then stupidly LFG deploys $US1.5 Billion worth of Bitcoin and commenced buying back UST. This brings down the price of Bitcoin and raises UST.
Seeing the network breaking the private firm begins to panic and as Do Kwon is refilling the liquidity pools and bringing back the peg the private firm empties their UST reserves.
Now that Do Kwon has lowered the price of Bitcoin the firm now rebuys bitcoin for a heavily reduced price.
Doesn't matter what anyone did as what ever steps the network took to correct the dip the firm had the same amount to keep dumping and draining the pools. LFG should have probably deployed the whole Bitcoin reserve and increased UST's value.
Instead the network massively depegged, the firm pocketed the Bitcoin with massive profits and the network collapsed.
What's the future plan?
Do Kwon has finally gone public with his "thoughts" on what should happen next at current Do Kwon is proposing:
The Terra community must reconstitute the chain to preserve the community and the developer ecosystem.
Validators should reset the network ownership to 1B tokens, distributed among:
- 400M (40%) to Luna holders before the depegging event (last $1 tick before the depeg on Binance should be reasonable), bLuna, LunaX and Luna held in contracts should also be recipients, minus the Terraform Labs account at terra1dp0taj85ruc299rkdvzp4z5pfg6z6swaed74e6. The new chain should be community owned. Preserving decent ownership of the network in its strongest believers and builders is important.
- 400M (40%) to UST holders pro-rata at the time of the new network upgrade. UST holders need to be made whole as much as possible
- 100M (10%) to Luna holders at the final moment of the chain halt – last minute marginal luna buyers should be compensated for their role in attempting to provide stability for the network
- 100M (10%) to the Community Pool to fund future development.
- All Luna besides the third tranche should be staked at the network genesis state.
- The network should incentivize its security with a reasonable inflation rate, say 7%, as fees will no longer be enough to pay for security without the swap fees.
Late entries cry sour
The proposal is still underway and we will need to wait some time for an outcome but it has caught many off guard and angry as there were a large portion of investors who jumped into Luna's fire expecting it to return to the beg. In all things being crypto they were probably fueling the fire and adding more liquidity to be drained.
Now they want to be reimbursed also which is an odd stance given they were taking a risk when they saw it breaking and got wiped. This is akin to walking into a burning building than complaining when you get burned.
Luna foundation guard is currently assessing what happenend and I look forward to their verdict.
I have further noticed that exchanges have turned on trading for Luna once again and investors should note that Luna proposal is to fork the network so chances are you are buying one of the most expensive meme coins currently on the market.
It is an unfair move by exchanges that are profiting off trading fees for a token that in all likelyhood will not be going anywhere anytime soon.
▶️ 3Speak
