UST seems to be an "algorithmic stablecoin" that is supported by the Luna cryptocoin?
It seems like you cannot trade Luna directly on coinbase. But there's a "WLUNA" (wrapped luna) that alleges to trade like Luna over the Ethereium blockchain. https://pro.coinbase.com/trade/WLUNA-USD
I'm not sure how any of this works. I recognize that the "algorithmic stablecoin" basically sells LUNA to prop up UST (and vice versa, when UST goes over $1, then UST is sold to prop up LUNA). But I thought that the whole TITAN / IRON thing from a few months ago proved that this structure was vulnerable?
Did UST / LUNA just end up making the same mistakes as TITAN / IRON? Why is this article discussing "BTC reserves" ?? Why would they be selling BTC to prop up UST? What mechanism exists there?
All of these cryptocoins have their own rules, and those rules will determine the failure case. I know how much I don't know. But at the end of the day, a $0.90 "stablecoin" is not a good look.
They gave away most of their reserve, over a billion in BTC to "professional market makers" to defend the peg - people realized and are now dumping LUNA, the counterpart to the peg.
To make matters worse, the algorithm effectively mints new LUNA diluting the supply if the peg breaks downwards.
Well, depends on who you ask, but in my humble opinion they managed to do everything as bad or even worse.
Titan was backed by some percentage of USDC and Titan itself, while Luna managed to be even more abominable: Backed by BTC and Luna, ensuring full exposure to 100% of market volatility and the highest possible system leverage, and then STACKING LOANS using the reserve BTC as collateral to generate even more system leverage! It’s phenomenal.
I was trying to understand how it works, and it looks like there are 2 things at play here. First, UST can always be burnt for $1 worth of LUNA (determined based upon the price the oracle establishes). There appears to be some sort of rate limiter or something, and it's trading a few percentage points above this.
Secondarily, you need to transfer out of LUNA (via a bridge or some other mechanism) in order to sell the LUNA. The problem is that the network is.. quite busy, and from what I can gather, bridging is taking a few minutes to go through.
I seriously considered bridging back and forth between Terra and Ethereum, buying UST on Ethereum, transferring it to Terra, trading it for LUNA, transferring the LUNA back, and finally selling the LUNA for more UST. The potential delays in bridging expose me to more risk than I would have expected.
I think the tool they used came from their capital reserves. IIRC they had about a billion dollars worth of BTC, and they have money from other sources as well. So they got liquidity to buy up all the sellers of UST on exchanges and stopped it from going to zero. If you have enough capital to soak up the supply, then you're good.
It seems like you cannot trade Luna directly on coinbase. But there's a "WLUNA" (wrapped luna) that alleges to trade like Luna over the Ethereium blockchain. https://pro.coinbase.com/trade/WLUNA-USD
I'm not sure how any of this works. I recognize that the "algorithmic stablecoin" basically sells LUNA to prop up UST (and vice versa, when UST goes over $1, then UST is sold to prop up LUNA). But I thought that the whole TITAN / IRON thing from a few months ago proved that this structure was vulnerable?
Did UST / LUNA just end up making the same mistakes as TITAN / IRON? Why is this article discussing "BTC reserves" ?? Why would they be selling BTC to prop up UST? What mechanism exists there?
All of these cryptocoins have their own rules, and those rules will determine the failure case. I know how much I don't know. But at the end of the day, a $0.90 "stablecoin" is not a good look.
EDIT: Wait, its now $0.78 ?? https://pro.coinbase.com/trade/UST-USD
Erm... that's not good.