A Korean ransacked global speculators in three days

Source: Visual China

"There is a girl who earned more than 10 million in the past two days by shorting LUNA coins."

Recently, a news of getting rich overnight went viral on social networks. The screenshots posted on the Internet show that the user’s principal is only 220,000 yuan, the rate of return is as high as 5950%, and the total income is 13.135 million yuan.

It is the plummeting LUNA coin that created such a myth of sudden wealth. The currency is called "Currency Circle Moutai" by insiders - in the past year, its price has soared from less than US$1 to around US$119.5, and its total market value was as high as US$41 billion at one point, making it one of the top five cryptocurrencies in circulation. However, in the sharp drop from May 10 to 12, it fell by more than 95% for three consecutive days, and short sellers became rich overnight.

Lucky only belongs to a very few people, and more coin speculators lost their money.

"I started buying at $1, but it kept falling. I bought nearly $200,000 of LUNA, and there was only $200 in my account this morning, a drop of 1,000 times." Some overseas investors shared their investment experiences on social networks .

"Friends around me have lost millions of yuan (RMB) per person." A market person told the author of "Prism".

The price of virtual currency is extremely unstable, and it is not uncommon to see skyrocketing and plummeting prices, and currency speculators are full of blood. However, unlike the previous "air currency" plummeting to zero, LUNA currency is highly correlated with USDT, the third largest stable currency in the currency circle.

"A project with a top ten market value will collapse as soon as it collapses, and it will return to zero in a week. The blow to the confidence of the currency circle is comparable to a nuclear bomb attack." Wang Shuai (pseudonym), an observer of the currency circle, told the author.

Wang Shuai also pointed out that in this looting of the wealth of currency speculators, since my country's regulatory authorities have already taken strict measures to ban virtual currency speculation, very few domestic investors have been damaged.

On May 12, there was a major earthquake in the currency circle.

The price of a virtual currency called LUNA fell in an almost straight line. It fell from around $5.8 to $0.05, a drop of up to 99%. And 3 days ago, its price was as high as 60 US dollars.

Such a drop stunned coin speculators who were used to skyrocketing prices. "It's really an eye-opener. It fell by more than 95% on the first day, and it can fall by another 99% on the second day." Investors complained.

LUNA coin price trend since its establishment

LUNA currency plays an important role in the virtual currency market, and its circulation market value once ranked among the top five in the virtual currency market. In April this year, its price reached a high of 116 US dollars, with a total market value of over 41 billion US dollars, which is close to the market value of Ping An Bank.

In the past year, the price of LUNA has continued to rise, making coin speculators flock to it. From the beginning of 2021 to April this year, its price has increased by nearly 200 times, thus winning the title of "Moutai in the currency circle", proving its status in the minds of coin speculators .

LUNA currency is highly related to UST, a stable currency in the virtual currency market, and both are tokens in the Terra blockchain system. Before the plunge, UST was the third largest stablecoin in the virtual currency market.

Since the price of virtual currency is extremely unstable, the currency circle has derived stable coins with relatively stable prices, so that speculators can protect their wealth from shrinking when their pockets are safe.

According to Jiang Zhaosheng, a researcher at Oker Cloud Chain, the more common stablecoins in the encryption market are legal currency collateral and encrypted asset collateral, that is, by using legal currency (such as the US dollar), encrypted assets (such as Bitcoin ) or other assets as value collateral. Maintain stablecoin price stability. UST is an algorithmic stable currency, that is, it does not have mortgage assets, but maintains its price stability by regulating the supply and demand relationship in the market.

According to the data, Do Kwon, the founder of the Terra chain, is Korean and graduated from the computer science department of Stanford University. The concept of the Terra chain is to use blockchain technology to build a payment system and issue price-stable encrypted tokens in a decentralized manner to achieve large-scale application of digital currencies.

LUNA coin is an important tool to maintain the stability of UST price. For every UST minted, LUNA coins worth $1 need to be burned. Under this mechanism, when the UST price is higher than $1, users can send $1 of LUNA coins to the system (LUNA coins are destroyed) in exchange for one UST, thereby increasing the supply of UST, and vice versa. In both cases, users can obtain additional income through arbitrage. Usually, the price of UST and USD can be maintained stable.

However, if the encryption market encounters violent fluctuations or UST credit is seriously damaged, this market mechanism for spontaneously regulating supply and demand will fail, resulting in large-scale liquidation, which will further collapse UST credit and fall into a negative cycle.

According to the British Financial Times, the recent wave of interest rate hikes by central banks around the world has caused market turmoil, and investors have sold speculative financial assets. The virtual currency market has been hit particularly hard. The cryptocurrency market has lost $1.6 trillion in value since hitting an all-time high seven months ago, with bitcoin more than halving in that time.

On May 8, UST was sold off in multiple huge transactions, causing its price to decouple from the US dollar. When UST failed to restore the anchor price of $1, panic spread among speculators: speculators dumped UST, resulting in more LUNA, but at the same time there was no confidence and demand for LUNA in the market, which led to its Prices continued to fall, creating a stampede.

The plunge of LUNA drove the overall decline of the virtual currency market. According to the contract emperor, within 24 hours, the contracts of more than 170,000 speculators were liquidated, and more than 600 million US dollars were wiped out.

Facing the extreme market of LUNA currency, the virtual currency exchange began to "unplug the network cable" - on the evening of May 12, Binance announced the suspension of transactions of LUNA currency and UST currency.

Binance founder Zhao Changpeng stated on social platforms that due to the flaws in the Terra protocol, a large number of new LUNA coins were minted, but because the blockchain where they are located has suspended operations, they cannot be deposited and withdrawn on any exchange. And new users do not know that there are a large number of newly minted LUNA coins outside the exchange, and start buying LUNA coins again. Once deposits are allowed, its price will plummet further. Due to these significant risks, Binance decided to suspend trading, which is to protect users.

This move stunned the speculators, and they gathered on Zhao Changpeng’s social account to denounce:

"How do you compensate those users who bought for $50?"

"I just spent more than $5,000 to buy it, and it was too late to sell and the transaction was suspended."

"I bought LUNA coins before the suspension of trading, and now LUNA coins have risen, but you have completely destroyed it. Now it is not LUNA coins that make me lose money, but Binance."

...

Changpeng Zhao stated that Binance asked the Terra team to restore the network, destroy the additional minted LUNA coins, and restore the UST peg. "But so far we haven't had any positive response, or much at all."

"I am very disappointed with how the Terra team handled the UST/LUNA incident." Changpeng Zhao said, "We usually don't comment on other projects, but this time I made an exception."

On May 14, Do Kwon, the founder of Terra, stated in a tweet that the value of UST and LUNA coins has basically returned to zero, indirectly acknowledging that the Terra project has failed.

The day before, the Terra project, to which LUNA coin belongs, announced that it would shut down operations. Ookelianxun commented that the blockchain system that can be unilaterally shut down by the operator does not belong to the blockchain and can be regarded as a scam.

The solution given by Do Kwon is to fork the Terra chain. In the new system, a new 1 billion tokens will be created, 40% of which will be distributed to LUNA holders before the crash, and 40% will be provided to UST holders. Someone, 10% to last minute LUNA buyers before the Terra blockchain shutdown, 10% to the operations team.

For such a solution, a user's message was highly praised: no direct apology; no direct responsibility; no solution, left to the community to solve. It was apparently drafted by his lawyers. Basically, he said "goodbye".

On May 13, the LUNA coin was re-listed on the Binance exchange. During the period, the increase reached 900%, but the price was still less than 1 cent after the surge. This market situation caused short sellers to liquidate their positions on a large scale.

Some coin speculators commented: This kind of virtual currency cannot be touched, buying the bottom is copying the house, and the contract (referring to short or long option contracts) is zero.

A coin speculator told the author of "Prism" that users who buy and sell LUNA coins can't make any money at all. The fluctuation range of LUNA currency is about 30% every 15 minutes, but according to the mechanism setting, the single profit of each sale of the user cannot exceed 1400 LUNA currency. The current price of LUNA coins is extremely low. Even if a user seems to have made a lot of money, it is impossible to sell them for profit. No matter short or long, basically there is no return.

In April this year, the total market value of UST reached 17.5 billion US dollars, and the total market value of LUNA exceeded 41 billion US dollars. In this crash, the industry estimates that at least US$50 billion in wealth will be wiped out.

Wang Shuai told the author that the stable currency is no longer stable, which not only hurts the spirit of speculators, but also severely dampens the investment confidence of the entire virtual currency market.

"They are all cyclical hype targets, and they can only attract speculators to speculate." Wang Shuai told the author that UST, a virtual currency that claims to be stabilized by algorithms, is not issued by the central bank and has no real asset mortgage endorsement. Although it has been accompanied by doubts about the "Ponzi scheme", UST has previously offered up to 20% interest "storage", attracting many users to convert their virtual assets into UST, and relaxing its existing risks alert.

Under the social account of Terra founder Do Kwon, coin speculators from many countries and regions told stories in English, Vietnamese, Korean, etc. that they invested in LUNA and now have nothing, and demanded that Do Kwon be responsible for the loss.

A university student who claimed to be from Turkey said that the loss was huge and he was unable to focus on his studies. Some netizens criticized: Since it is money for schooling, why would you gamble on virtual currency?

Wang Shuai told the author that due to the multiple rounds of severe crackdowns on the risks of virtual currency transactions by Chinese regulatory authorities, most Chinese investors have withdrawn from virtual currency transactions, and only a very small number of investors may have retained virtual currency trading accounts and exchanged assets into stable coins Or Bitcoin and other mainstream currencies, the transaction is no longer active, but it avoids the loss caused by holding UST and LUNA.

In May 2021, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued a document to prevent the risk of speculation in virtual currency transactions, requiring financial institutions and payment institutions to strengthen the monitoring of virtual currency transaction funds, and promptly adopt restrictions, suspensions or Terminate relevant transaction measures; and remind consumers that personal bank accounts are not used for virtual currency recharge, cash withdrawal and other transaction activities.

In the face of the increasingly large stablecoin market, overseas regulatory authorities are also urging it to strengthen supervision.

According to the Financial Times, the stablecoin market has reached $180 billion, and three stablecoins, Tether (USDT), USDC and Binance USD, account for 80% of the market.

Among them, Tether, which has a market value of up to 83 billion US dollars, its project company was fined 41 million US dollars by the US Commodity Futures Trading Commission last year. The company is accused of making misleading statements that it has enough U.S. dollar reserves to back every stablecoin in circulation.

Tumi, an official of the U.S. Senate Banking Committee, warned that stablecoins should be regulated as soon as possible, otherwise bad things will happen to investors' money. He recommends that organizations offering stablecoins publicly disclose their reserves every month and submit audits every 3 months. The Biden administration wants only state-regulated financial institutions to issue stablecoins.

The LUNA coin, which has been re-listed on the exchange, is calling on investors to continue to support: "Buy and hold now, and you will thank me in the future."

In the comment area, some people asked where they could still buy, and some people posted screenshots of transactions, saying that they had bought support.

Some investors expressed dissatisfaction: these people copied another LUNA and UST, and then moved on like nothing happened. "It shouldn't be."

In any case, the speculators who liquidated their positions during the market crash, and those who held UST and LUNA before Terra ceased operations, their looted wealth will never come back.