MARKET WRAP

1. Cryptos Recover; Stablecoins Get Shaken

CoinDesk – May 14, 2022 at 3:38am       

After a volatile trading week in the wake of the Terra Luna de-pegging debacle, most cryptocurrencies traded higher this past Friday, as bearish outlooks slightly wane. Bitcoin returned toward the $30,000 price level after dropping well below $28,000, up by 5% on Friday compared to Thursday. Now, the price continues to bounce back above and below $30,000, reflected by momentum signals that remain negative.

Overall, cryptos and stocks are experiencing a relief rally, as the broader market sell-offs that have been witnessed recently are slowing down somewhat. Altcoins outperformed in particular, led by $ICP, $MANA, and $DOGE, rallying by over 20% at the start of the weekend.

Despite the temporary respite across the market, it appears that crypto traders are beginning to exit markets entirely, mostly in response to Terra’s downfall. According to Glassnode, a significant contraction in aggregate stablecoin supply, led mostly by $USDC, has been evident over the past month. It is clear that such a contraction results from many investors’ dubious outlook on the stablecoin market. It is worth noting that Tether’s $USDT is the only stablecoin to see its supply continue to grow.

 

As of Friday, the Terra blockchain resumed activity after a 9-hour pause. $LUNA continues to trade below 1 cent.

2. Terra Luna's “Death Spiral” Comes to Fruition

@mhonkasalo on Substack - May 10, 2022

Terra Luna, once a top-10 crypto project by market cap, experienced a catastrophic crash on Wednesday, May 11.

It was only a month ago when the price of $LUNA reached its all-time high (ATH), peaking at $116.4 per token, according to Coinmarketcap, which translated to a hefty valuation of more than $40B for all circulating $LUNA. On top of that, with more than $20 billion worth of minted $UST, Terra’s stablecoin, the whole Terra ecosystem stood at an approximate $60B price tag. At the time, such a gigantic market capitalization certainly lulled $LUNA and $UST holders into an unshakeable faith in the project’s “stability.”

However, at the beginning of May, a devaluation of $UST on the Curve Finance protocol drives its price down to around 68 cents. This began with an initial $85M $UST sell-off on the Curve liquidity pool, followed by a series of $UST sell orders that eventually knocked UST off its peg. The well-funded Luna protocol swiftly took action to reinject liquidity back to the pool and recover $UST’s valuation back to the 93-cent mark on May 10th.

Unfortunately, the recovery represented an ephemeral respite from the storm that Terra Luna was about to endure. Shortly after the recovery on May 11, Terra witnessed even more selling pressure on $UST, and this time it was in one of the major exchanges: Binance. Hundreds of millions of $UST were queued up for sale in the CEX’s order book, inevitability driving its price down all the way to 62 cents.

As the stability of $UST serves as the foundation of the Terra Luna protocol, these price fluctuations blew one massive hole in the credibility of the project. People who used $UST as their “savings account” now saw their money drop by 40%. All of them were rushing to pull their money out of Luna’s ecosystem.

And this is where it all falls apart.

In order to “exit” the Terra Lunaecosystem without completely disintegrating their crumbling portfolios, $UST holders were relegated to a singular exit strategy. They would have to burn their $UST to mint $LUNA, and then sell their $LUNA on the open market. Since Terra permits 1 $UST to convert directly to $1 worth of $LUNA, regardless of the price, investors could be saved from $UST’s rapid price decline.

The result of this $UST was the hyperinflation of $LUNA. Its price began to free fall, beginning from $80 at the beginning of May to $30 only 10 days later.

To make the matter worse, the Luna Foundation Guard, the entity that holds the reserve treasury for $UST, decided to unload billions of dollars worth of their $BTC reserve. Since $BTC serves as the “index currency” for the crypto market as a whole, this sell-off applied even more downward pressure on the price of $LUNA. 

The conclusion of this textbook “death spiral” has rendered $LUNA virtually worthless as its price descends asymptotically to zero. With $UST now trading at 17 cents to the dollar, this entire debacle spelled the end of an era in the so-called “stablecoin wars.” Surely, the downfall of $LUNA will go down in crypto history as a watershed moment that harkens back to the 2008 financial crisis.

On Friday, Terraform Labs Founder Do Kwon published in a forum his “Terra Ecosystem Revival Plan”, by which he will distribute 1 billion new tokens entirely to $UST and $LUNA holders. Despite the plan, which functions more as an apology and compensation for the affected $UST and $LUNA holders, Kwon concedes that $LUNA holders “have been so severely liquidated and diluted, that we will lack the ecosystem to build back up from the ashes.”

3. Warren Buffett-Backed Nubank Launches Crypto Trading — Holds Bitcoin on Balance Sheet

Bitcoin.com - May 12, 2022

Nubank, one of the world’s largest digital banks that is backed by Warren Buffett, announced on Wednesday that it has launched a cryptocurrency trading service integration for the Nubank app, allowing customers to buy, hold, and sell digital assets without opening new accounts. 

A representative of Nubank revealed that they plan to add more cryptocurrencies for their clients in the near future. The service will be released initially for users in Brazil this May, and Nubank hopes to bring this service to its entire customer base by the end of July.

While Nubank’s new crypto trading integration is certainly indicative of its interest to bring crypto to its customers, it may also signal a greater ambition. A recent partnership between Nubank and Paxos, a regulated blockchain infrastructure provider, proves that Nubank hopes to expand cryptocurrency adoption in Brazil, Mexico, and Colombia.

While Warren Buffett is a well-known critic of Bitcoin, having once declared that he would have never bought Bitcoin even when it was priced at $25, it seems that he may still present an open mind toward crypto. Nubank’s parent company Nu Holding declared that 1% of its balance sheet would be strictly in Bitcoin, and Warren Buffett’s Berkshire Hathaway is known to be a majority shareholder of Nu Holdings, with a $500 million investment.

4. Sony and Theta Labs Launch 3D NFTs That You Can (Almost) Touch

CryptoNews - May 6, 2022

Theta Labs announced that they are teaming up with Sony to create the sensation of solid 3D NFTs as part of a limited-edition NFT collection designed specifically for the Sony Spatial Reality Display (SRD). 

The technology in question allows users to observe and manipulate NFTs without the requirement of glasses or other supporting accessories. The Sony SRD is capable of such a feat due to its eye-tracking technology, which allows the viewable image to pivot in sync with the viewer’s eye and head movements in all directions.

Theta Labs’ first NFT collection for the SRD will be called “The Tiki Guy” and limited to only 10 NFTs. For any purchaser of the NFT collection that lives in the United States, a free Sony SRD unit will be included, which is valued at $5000. The NFTs will also be made for sale on the Theta NFT marketplace.

This collaboration between an NFT developer and an augmented-reality device unlocks a new avenue for future development in the space. Moving forward, Sony and Theta seem to believe that the integration of SRD and related technologies with other metaverse projects will unlock new ways to work, entertain, and socialize more naturally in a metaverse environment.

The project also serves well as a marketing campaign for Sony’s SRD, which was created with other designers, artists, and engineers in mind.