LUNA Drops 20% As Investors Panic, What Is The Link With Anchor And UST?
28 Enero 2022 - 12:37PM
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LUNA has been dropping sharply in the past few days, deeper than
larger cryptocurrencies. As of press time, Terra’s native token
moves on critical support barely above $50 with a 16.4% loss in the
last 24 hours. Related Reading | Terra Announces Non-Profit ‘Luna
Foundation Guard’ According to Wu Blockchain, the token lost as
much as 20% in the last day. Apparently, retail investors have been
panic selling their LUNA funds due to concerns about several of its
dApps and UST. The latter is one of many stablecoins operating on
the Terra ecosystem which is based on a supply and demand mechanism
to maintain its peg. As NewsBTC reported back in December, UST has
been gaining relevance across the DeFi sectors. The stablecoin
allows holders access to the Anchor Protocol, Terra-based lending
and borrowing application that consistently offered its users a
19.5% compounding yield on their UST deposits. This rate surpasses
that of its competitors, some of which have issues offering a 10%
yield with similar products. However, the current downtrend in the
crypto market has heavily impacted LUNA and the Terra ecosystem.
Some users believe the ecosystem as a whole could be in danger as a
result of a reduction in Anchor’s reserves which according to some
projections could reach $0 in the coming weeks. Without these
funds, the protocol would be unable to pay off its users and due to
Terra’s mechanism, it could trigger a fresh leg down across its
assets. The pegged in UST has been offered in the past days, as
more users seem to believe this theory. Thus, panic spreads amongst
sellers looking to mitigate their losses. As of press time, UST has
seen an important recovery as it hit a multi-month low of 0.98
versus the U.S. dollar. Terra (LUNA) Inventor Addresses Concerns
Around Anchor Do Kwon, co-founder, and CEO of Terraform Labs, the
entity behind Terra’s ecosystem, recently addressed the controversy
generated around Anchor and UST. In an attempt to counterbalance
the FUD, as some LUNA holder has called it, Do Kwon emphasized
Anchor’s objectives. The first, he wrote on a Twitter thread, is to
make market yields on stablecoins less volatile, while increasing
the capital efficiency of the platform. Anchor’s Yield Reserve is a
“centerpiece” to address these issues, but this component of the
protocol can operate with a surplus or a deficit. Kwon said:
Recently as leverage started to wind down from crypto markets,
deposits have gone up a lot and borrowing down. The yield reserve
has been running at a deficit to maintain the deposit yield. Users
seem to believe that the Yield Reserve, Kwon said, should “always
operate at a surplus”, and that the YR depletion will “have
disastrous consequences”. The co-founder of Terraform Labs said
that Anchor’s Yield Reserve was always designed to be used on
current market conditions. On the second widespread concern by
users, Kwon said that if the protocol runs out of funds in its
Yield Reserve, it will “operate as a regular money market” still
offering users around 15% to 16% in incentives. Therefore, he
concluded that the protocol, and by extension the ecosystem, “will
be fine”. Related Reading | NEAR Records 70% Rally On Terra
Integration, Will It Close The Year In Profit? In the future, the
team at Terraform Labs will make improvements to reduce “LUNA
dominance in Anchor collateral under 40%”. In that way, a similar
situation could be prevented. In the meantime, Kwon said: I am
resolved to find ways of subsidizing the yield reserve. Anchor is
still in the growth phase, and maintaining the most attractive
yield in DeFi stable will strengthen that growth & build up
moats.
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