Researcher, Enthusiast, Blockchain and Crypto Lover, Cryptography Lover, Ethereum is the King.
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AryaArweave: The Permanent Data Storage
Permanent Cloud StorageIn today's digital age, cloud storage has become an essential aspect of our daily lives. With the increasing amount of data that we generate and need to store, the traditional means of data storage, such as physical hard drives or flash drives, are becoming less practical. Cloud storage offers a more convenient and accessible solution, allowing users to store their data on remote servers that they can access from anywhere, at any time, as long as they have an inter...
AryaWaves: Layer-1? Layer-0? Both?
Many layer-1 platforms exist out there. A layer-1 platform, in the blockchain world, is a blockchain able to perform smart contracts and dApps, without any dependency on any other blockchains. Actually, Waves is and is not one of these. This may sound confusing to you. How can a blockchain be both a layer-1 platform and not? Well, the answer is complex, and to get to the answer, it is best first to know what layer-0 is.Layer-0Blockchains Layer-0 blockchain is a concept that Cosmos Network int...
AryaDiscrete Logarithm in Cryptography
Discrete logarithm is one of the most important parts of cryptography. This mathematical concept is one of the most important concepts one can find in public key cryptography. Let’s first determine a very basic algorithm to make public keys in cryptography and then describe how discrete logarithm can help us in this algorithm.Diffie-Hellman Key ExchangeIn this method, there are two people, Alice and Bob, who want to make a safe channel to exchange messages, which Eve is an untrusted person wh...
Researcher, Enthusiast, Blockchain and Crypto Lover, Cryptography Lover, Ethereum is the King.
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Here, we are going to talk about what actually happend to Terra $LUNA and $UST. Why it happened, and what the impact is to the cryptocurrencies.
Stablecoins are the main feature of the Terra protocol: crypto assets that track the price of an underlying currency. As a digital form of currency, Terra stablecoins can be used just like fiat currency with blockchain’s added benefits: an unchangeable public ledger, instant transactions, faster settlement times, and fewer fees.
Stablecoins are only valuable to users if they maintain their price peg. The Terra protocol uses the basic market forces of supply and demand to maintain the price of Terra. When the demand for Terra is high and the supply is limited, the price of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra decreases. The protocol ensures the supply and demand of Terra is always balanced, leading to a stable price.
The price stability of Terra is achieved by the protocol’s algorithmic market module, which incentivizes the minting or burning of Terra through arbitrage opportunities. Arbitrage occurs when a user profits from price differences between markets.
The Terra protocol’s market module enables users to always trade 1 USD worth of Luna for 1 UST, and vice versa, incentivizing users to maintain the price of Terra. This same principle is true for all Terra stablecoin denominations.
Users can access the mint and burn function of the market module by performing market swaps in Terra Station. To learn how to use the market swap feature of Terra Station, visit the Terra Station market swap guide.
Example:
If 1 UST is trading at 1.01 USD, users can use the market swap feature of Terra Station to trade 1 USD of Luna for 1 UST. The market burns 1 USD of Luna and mints 1 UST. Users can then sell their 1 UST for 1.01 USD, profiting .01 USD through arbitrage, adding to the UST pool. This arbitrage continues until UST price falls back to match the price of USD, maintaining Terra’s peg.
If 1 UST is trading at .99 USD, users can buy 1 UST for .99 USD. Users then utilize Terra Station’s market swap function to trade 1 UST for 1 USD of Luna. The swap burns 1 UST and mints 1 USD of Luna. Users profit .01 UST from the swap. This arbitrage continues, and UST is burned to mint Luna until the price of UST rises back to 1 USD.
What happens if Terra doesn’t burn all the $LUNA??
After some time passed, Terra decided not to burn all the $LUNA and instead use it to sell in the market and buy some $BTC instead. What happens now? INFLATION in $LUNA. Demand is low but supply goes up, the price of $LUNA goes down.
But now what happens to $UST when the price of $LUNA goes down? Because of the algorithmic model, the price of $UST goes down. The series of dominoes happens and both $UST and $LUNA go down together and no “$BTC back” can help the ecosystem.
There has been two series of attacks to the protocol. First a big amount of $UST came in to get burnt. So the algorithm had to sell some big amount of $LUNA to give away the amount needed. $LUNA got minted, got sold in the market, the USD amount needed to cover the $UST burnt is now ready.
This made the price of $LUNA and $UST just go down crazy. But one bad thing that the Terra foundation did is that they had not enough liquidity to cover all the $UST they have given away. Because they have minted a big amount of $UST with no backs.
Now, comes in the second series of attacks. A huge amount of $UST needed to get burnt. Not wnough liquidity to back it up. What happens?
After all that happened a big crash came to $LUNA and $UST price. This crash made everyone to fear about the future of the price and the project and made them to sell their $LUNA and $UST against any other cryptocurrency they could. What happens now?
The GREAT Crash! you guessed right.
So that is why $LUNA and its “Stablecoin”, $UST, faced a major crash in price.
The algorithm is designed so that the price of $UST gets pegged to 1 USD as soon as possible. when this happens and the demand gets back to $LUNA, I can anticipate that $LUNA and $UST can come back. But probably not where they have been. It is too much out of mind that we can see 3 digit $LUNA, but a 2 digit $LUNA can happen.
If you learnt something from this little article, I would be glad if you shar it with your friends.
Thank you.
Here, we are going to talk about what actually happend to Terra $LUNA and $UST. Why it happened, and what the impact is to the cryptocurrencies.
Stablecoins are the main feature of the Terra protocol: crypto assets that track the price of an underlying currency. As a digital form of currency, Terra stablecoins can be used just like fiat currency with blockchain’s added benefits: an unchangeable public ledger, instant transactions, faster settlement times, and fewer fees.
Stablecoins are only valuable to users if they maintain their price peg. The Terra protocol uses the basic market forces of supply and demand to maintain the price of Terra. When the demand for Terra is high and the supply is limited, the price of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra decreases. The protocol ensures the supply and demand of Terra is always balanced, leading to a stable price.
The price stability of Terra is achieved by the protocol’s algorithmic market module, which incentivizes the minting or burning of Terra through arbitrage opportunities. Arbitrage occurs when a user profits from price differences between markets.
The Terra protocol’s market module enables users to always trade 1 USD worth of Luna for 1 UST, and vice versa, incentivizing users to maintain the price of Terra. This same principle is true for all Terra stablecoin denominations.
Users can access the mint and burn function of the market module by performing market swaps in Terra Station. To learn how to use the market swap feature of Terra Station, visit the Terra Station market swap guide.
Example:
If 1 UST is trading at 1.01 USD, users can use the market swap feature of Terra Station to trade 1 USD of Luna for 1 UST. The market burns 1 USD of Luna and mints 1 UST. Users can then sell their 1 UST for 1.01 USD, profiting .01 USD through arbitrage, adding to the UST pool. This arbitrage continues until UST price falls back to match the price of USD, maintaining Terra’s peg.
If 1 UST is trading at .99 USD, users can buy 1 UST for .99 USD. Users then utilize Terra Station’s market swap function to trade 1 UST for 1 USD of Luna. The swap burns 1 UST and mints 1 USD of Luna. Users profit .01 UST from the swap. This arbitrage continues, and UST is burned to mint Luna until the price of UST rises back to 1 USD.
What happens if Terra doesn’t burn all the $LUNA??
After some time passed, Terra decided not to burn all the $LUNA and instead use it to sell in the market and buy some $BTC instead. What happens now? INFLATION in $LUNA. Demand is low but supply goes up, the price of $LUNA goes down.
But now what happens to $UST when the price of $LUNA goes down? Because of the algorithmic model, the price of $UST goes down. The series of dominoes happens and both $UST and $LUNA go down together and no “$BTC back” can help the ecosystem.
There has been two series of attacks to the protocol. First a big amount of $UST came in to get burnt. So the algorithm had to sell some big amount of $LUNA to give away the amount needed. $LUNA got minted, got sold in the market, the USD amount needed to cover the $UST burnt is now ready.
This made the price of $LUNA and $UST just go down crazy. But one bad thing that the Terra foundation did is that they had not enough liquidity to cover all the $UST they have given away. Because they have minted a big amount of $UST with no backs.
Now, comes in the second series of attacks. A huge amount of $UST needed to get burnt. Not wnough liquidity to back it up. What happens?
After all that happened a big crash came to $LUNA and $UST price. This crash made everyone to fear about the future of the price and the project and made them to sell their $LUNA and $UST against any other cryptocurrency they could. What happens now?
The GREAT Crash! you guessed right.
So that is why $LUNA and its “Stablecoin”, $UST, faced a major crash in price.
The algorithm is designed so that the price of $UST gets pegged to 1 USD as soon as possible. when this happens and the demand gets back to $LUNA, I can anticipate that $LUNA and $UST can come back. But probably not where they have been. It is too much out of mind that we can see 3 digit $LUNA, but a 2 digit $LUNA can happen.
If you learnt something from this little article, I would be glad if you shar it with your friends.
Thank you.
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