The fall of TerraUSD confirms the winter of cryptocurrencies
Founded in 2018 by Do Kwon and Daniel Shin, Terraform Labs created the Terra blockchain with LUNA as the network’s native token. Hence, Terraform created TerraUSD (UST) as the stablecoin of the network, which will be overseen by the Luna Foundation Guard (LFG).
The UST was not supported by tangible assets, but by algorithms that used the LUNA to stabilize it. As demand for UST increased, LUNA tokens were withdrawn from circulation to reduce supply and increase their value. With the scheme drawing much skepticism, with some calling it a Ponzi scheme, LFG has begun hoarding Bitcoin (BTC) in its reserves.
As of April 2022, LFG had 39,897.98 BTC worth $1.67 billion at the time. Unfortunately, three traders traded millions of UST for USDC in a very short time, causing the stablecoin to lose its 1:1 peg to the US dollar. As LFG struggles to sell some of its BTC reserves to stabilize UST, a massive meltdown begins, causing UST to collapse further.
Eventually, a $60 billion cryptocurrency ecosystem collapsed because one company had too much power.
The FTX Exchange
FTX Exchange started out rather tentatively as a platform to buy and sell cryptocurrencies. Except that its founder, Sam Bankman-Fried (SBM), had also created Alameda Research, a quantitative trading platform. This wouldn’t have been a problem if the latter’s balance sheet hadn’t been made up largely of FTX’s native token, FTT.
When this news was revealed on Nov. 2, investors began to worry about the leverage and creditworthiness of all SBM companies. Binance triggered an FTT fire sale on Nov. 6 by announcing it would sell all of its FTT holdings, then backing out of an acquisition deal after experiencing too many issues with the exchange.
This was, again, a case of centralization, as FTX was worth $32 billion and had over a million customers. Within 10 days the company went bankrupt and investigations are underway in the United States and the Bahamas.
A report from Bloomberg indicates that authorities in the Bahamas 🇧🇸 are contacting the US 🇺🇸 about the possibility of questioning the founder of #FTXFried Sam Bankman.
Talks have reportedly intensified in recent days. pic.twitter.com/nuesuCEFTE
— Goku 🔥 (@Crypto__Goku) November 16, 2022
FTX drags other exchanges down!
Due to the influence and reach of FTX, many other exchanges have either been exposed to the FTT token or had deposits on the exchange. Japanese exchange Liquid Global, which was acquired by FTX earlier this year, has filed for Chapter 11 bankruptcy in the United States and halted all crypto or fiat withdrawals.
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FTX Token Price Might Drop To $0.008 Because Of This!
Atom Asset Exchange (AAX) also halted withdrawals, but quickly distanced itself from FTX. It is one of the largest stock exchanges in the world, powered by LSEG technology from the London Stock Exchange Group. In a statement, AAX said the shutdown was due to the bankruptcy of a third-party partner and that it would resume normal operations for all users within 7-10 days.
🚨 FLASH: AAX, a Hong Kong based CEX derivative has suddenly announced that it will suspend all operations (including withdrawals).
It will take 7~10 days to restore users’ resources.
AAX(.)com is ranked 17th (derivatives) on Coingecko pic.twitter.com/EygBq1GNyI
— Coin Academy (@coinacademy_fr) November 13, 2022
At Crypto.com, USDT and USDC deposits and SOL withdrawals have been stopped, although it appears to be a temporary network issue. The same can be said for cryptocurrency lending platform Nexo which has ensured users that they are not exposed to FTX or FTT. Nexo has gone so far as to provide a real-time audit done by Armanino LLP, but many remain skeptical.