Do you hear that? That sound in the distance… the sound of terror, the sound of ngmi. The fear that is gripping the crypto community, taking with it all semblance of sanity and hope? Reckoning.
“The end is nigh, abandon all hope!” This is the cry you may hear from those that do know now the strength of the “HODLers “ the brave souls that weather all storms and come out stronger after all the carnage, the ones not afraid of the massive losses, the ones that wade through the carnage with a smirk of enthusiasm on their faces.
This is the end of “Solana Summer.” This late Solana Spring brings pain and heartbreak, but can the cause for our discontent be something on the Solana blockchain, or could our woes be the byproduct of a symptom started from another realm, another area, another lunatic with their eyes full of greed and lips salivating at the destruction that has ensued?
Truly as is always the case chaos ensues due to lunacy, a lunatic that did not want to value the rules of the game, and one ruler who decided that their ways of greed and dishonesty were the only way. This tragic loss of profit, of life ( or life savings for some), can all be attributed and started with one lunatic and his ego. With his final act, we saw the moon fall.
As we speak Luna is crashing and with it other tokens and coins as well. Currently, Bitcoin has taken drops over 18% while Ethereum 19%. The blood is in the water and the sharks are hip to the smell. There were signs of collapse when UST lost its peg on Saturday falling to $0.987 before rallying back to $1, there were those that claimed the house built by Do Kwon had no real foundation. The sister coin $LUNA fell 10% that same day.
Before we dive more into the purveyor of this destruction it is best we break down the steps as to where this all came into play. We must look into the underlying elements that created this disastrous event and learn more about what ensued. Without proper knowledge, we are doomed to once again fall into this disarray if we do not educate ourselves properly. Let us first start at what happened first, let us turn to Anchor.
The Attack on Anchor
Massive withdrawals from Anchor Protocol past hour, frequency increasing— Resonance (@resonancethis) May 7, 2022
There's only $300MM left of exit liquidity left on pool 53 before BTC peg
Hope this isn't how it starts — on a low liquidity weekend pic.twitter.com/BYrhSHtRkI
Let us keep in mind that UST has had a history of losing its $1 peg before but that was long before they built on their BTC and Avalanche reserve holdings. This “de-pegging” seems to be the result of an “attack” on the Anchor protocol. As stated in our hall of documents( read that as previous articles) Anchor has recently joined with Solana to provide new ways of liquidity. The protocol is a leading market that offers high yields to those that use UST. The protocol had an initial $14 billion in deposits which dropped quickly to $11.2 billion, keep in mind that the total circulating supply of UST is only $18 Billion. The loss of UST was not only felt on Anchor but on Curve, a DeFi platform, as well. Terraform labs made a sizeable $150 million withdrawal of UST and claimed it was being used to shuffle around funds between pools. $100 million of that was replaced once they noticed the price of UST falling behind other stablecoins. This was not the only amount of UST to be mysteriously moved about. A total amount of $192 million worth of UST was dumped into the Ethereum and Binance chains with $108 million of that being on the Ethereum chain- all from a single wallet. This led to many in the Terra community calling this a “coordinated attack”
today's attack on Terra-Luna-UST was deliberate and coordinated. Massive 285m UST dump on Curve and Binance by a single player followed by massive shorts on Luna and hundreds of twitter posts. Pure staging. The project is bothering someone. 🌝 on the right path!— Caetano Manfrini (@CaetanoManfrini) May 8, 2022
Ah, an inside job! one may say, and in times of turmoil, the citizens of a community look to their leader to soften all fears and keep the FUD at bay. That would be ideal, but the leader of Terra, Do Kwon, decided that having a forked tongue and sly ego was the better way to handle the masses that begged for reassurance.
I’m up – amusing morning— Do Kwon 🌕 (@stablekwon) May 7, 2022
Anon, you could listen to CT influensooors about UST depegging for the 69th time
Or you could remember they’re all now poor, and go for a run instead
In what can be called the “single biggest wealth destruction event in crypto history” ( this guy’s words not ours) the best plan of this lunatic is to be as cryptic and rude as possible at all times.
The leader of Terra continued to use other avenues to prove that the fault lied elsewhere and that things would go back to normal. The strange thing was one wallet was constantly pumping money into UST’s peg directly after Kwon started tweeting on Sunday. The wallet input over $200 million UST in order to try to rebalance the Curve UST pools, this would be used to boost the price. There were more swaps through the morning as the peg was recovered.
Was the wallet that of the illustrious Terra leader or was it from an ally? Some speculate that Jump Crypto once again donned a cape and went to save the peg the same way they offered help to Solana during the wormhole exploit that happened this past February. Other firms such as Celsius and Cashaa refused to get involved with the situation.
Exclusive: TerraUSD (#UST) stablecoin is struggling to win support for a rescue and deal talks have stalled.— Yueqi Yang (@Yueqi_Yang) May 11, 2022
Alameda, Celsius, Galaxy Digital, Jane Street, Jump Crypto were among those in talks, sources say https://t.co/iHAU5NdKFf w/@KatLeighDoherty @MuyaoShen @crypto
Keep in mind oh great travelers of crypto that the tower of UST is only as strong as its LUNA foundations. LUNA keeps the dollar price via a set of on-chain mint and burn mechanics.
The leader of Terra has been reprimanded for using LUNA to buy Bitcoin and other cryptos to back UST. This has led many to claim that Terra is not actually centralized and not decentralized as thought. Currently, Luna has lost a large chunk of its value and continues to fall, with a current price of $0.6146 at the time of this writing. You have to understand fully the way that UST and Luna work with each other in order to understand how some see this as an effort that came from within.
The initial point was the token would always be stable at $1 USD. Investors were always able to exchange between the two tokens, once one was minted the other was burned away. If UST falls below $1 an arbitrage opportunity for investors to trade their UST for Luna would arrive thus creating an opportunity for profit. The UST becomes scarce and the investors make a profit while the scarcity brings up the value of the UST. If the value of UST were to be over $1 another similar utility and opportunity is created to rebalance the equation so to speak.
Now knowing the way things are supposed to work let us look back on this past weekend when a massive surge in UST took place. The surge caused the price of the token to fall below 99 cents. This was not the first time the peg was dropped but it was indeed the first time since $10 billion in Bitcoin and $200 million in Avalanche were bought as a safety net. Now let us take into account that moments after this surge hundreds of millions worth of UT were dumped, $2 billion in withdrawals from Anchor protocols were made, and #Ponzi became a hashtag trending on Twitter. One final piece of the puzzle would be this rather cryptic post made about Do Kwon days after the drop.
Shall we cower in our homes as the sky begins to fall, oh where is Chicken Little when we need him? Is this the very end all of those naysayers and doomsday prophets spoke about? Is this the great crypto cataclysm that is meant to take not only the wealth but the mental stability of many as well? Should those in the land of Solana flail their arms about and give up all hope?
Many would say no, this is a test of the strength of a blockchain’s community and resilience. The annals of our history will look back on this time and see those that powered through become ever more victorious. The times are hard, and the challenges are many but even with the fall of one empire, there will never be a complete undoing of web3 and many other projects still being built upon Solana and other chains. And while this terror has affected all of us there will always be a way to rise from the ashes and soar to new heights.