Many of you will be aware of the recent issues surrounding LUNA, UST, and the Terra ecosystem, which has resulted in one of the biggest downturns of the crypto markets of the last few years. This article provides a brief overview of the steps that we took at Bitrue in order to ensure that our users were kept safe and reduced exposure to undue losses.
Earlier this week the value of UST de-pegged from its intended value of $1 and became worth less than intended. UST is an algorithmic stablecoin paired with LUNA, which means that it can always be traded for $1 worth of LUNA. If the value of UST becomes different from $1 then arbitrageurs are usually able to step in and profit from the discrepancy, which thereby causes the value of the stablecoin to revert to approximately $1.
In this scenario however, consumer confidence in LUNA evaporated which meant that arbitrageurs were not willing to step in as usual. Large amounts of LUNA, in excess of 1,600,000,000 per hour, were being minted by the algorithmic protocol as an attempt to fix the issue, an action that was noticed by the Bitrue team and provided the first warning signs that action would need to be taken to protect our users. Over the next few days the total supply of LUNA would expand by orders of magnitude each day.
At Bitrue we noticed this behavior early and took quick steps to adapt and eventually remove the LUNA3S and LUNA3L leverage tokens. Leverage tokens allow users to multiply their profits and losses on a particular asset, and as the value of these tokens was swinging wildly it placed extreme and unexpected risk on the holders.
Our trading data shows that the trading volume on LUNA has increased significantly in the past 48 hours with many users still trying to long the asset. It has become clear that there is very little chance of the project recovering however, and we stand by our decision to remove the majority of trading pairs for these coins as well as remove them from our wider range of services, such as Power Piggy.
We take the safety of our users very seriously and will continue to monitor the situation as it unfolds. We are here to help ensure that all of the people who trust us with their assets will be able to continue generating income for decades to come, and part of that responsibility involves us taking timely action against risky or collapsing assets as we have seen this week.