🙋 What the FUD?

Good morning! This is your Friday edition of Crypto Dispatch.

A side effect of Terra’s collapse: the rumour mill is churning.

We’re here to shut one down. It involves the Winklevoss twins (of The Social Network fame) crypto exchange Gemini and investment firms Blackrock and Citadel.

To sum it up, gossip led people to believe that Gemini loaned 100k of BTC to both firms, who ten swapped 25k of BTC for UST and then dumped both assets, a move that triggered the mass selloff of LUNA and depegged UST.

It turns out it’s not true.

“We are aware of a recent story that suggested Gemini made a 100K BTC loan to large institutional counter-parties that reportedly resulted in a selloff in LUNA,” the Winklevoss exchange tweeted. “Gemini made no such loan.”

“We were in no way involved. You can put that on the record attributed to me if you like,” Citadel CEO Ken Griffin told The Milk Road.

“Rumors that BlackRock had a role in the collapse of UST are categorically false,” BlackRock spokesperson Logan Koffler told Forbes. “In fact, BlackRock does not trade UST.”

In today’s edition:

🌐 Terra is trying

💲 Tether stablecoin destabilizes

Terra-fying

Do Kwon’s Terra ecosystem seems to be in a state of decay as its UST stablecoin continues to fall short of its US$1 peg, and its native token LUNA loses almost all of its value. Can Kwon’s support measures bring it back to life?

What happened: It’s been a week for Terra. Prices continued to trend downhill for the blockchain that last week had a $20b market cap stablecoin and a $40b market cap token that has now fallen to nearly zero, leaving investors shook and the entire crypto community feeling the after-effects. People eagerly awaited reassurance from Kwon, and on Wednesday, he outlined the path forward in a Twitter thread.

A parameter change proposal seeks to “increase of BasePool size and decrease of recovery block, to increase total daily minting capacity 4x,” an idea Kwon supports and says will aid in getting to a rebuilding phase “until parity is reached.” He wants to eliminate the “bad” debt created by the massive liquidity pull.
UST will switch mechanisms from an algorithmic stablecoin to a collateralized stablecoin.

Terraform Labs halted the blockchain on Thursday afternoon to prevent “governance attacks,” meaning users could process no transactions on the network. Twenty minutes later, the account tweeted that validators would coordinate to restart the blockchain “in a few minutes,” though as of this writing, it was still down.

Dark side of Do Kwon: Amid the turmoil, CoinDesk revealed that Kwon was behind a previous stablecoin project, Basis Cash, that failed. The Ethereum-based cryptocurrency never reached a $1 peg and currently sits below 1 cent.

Why it matters: The news of Kwon’s past failure just piles on in terms of bad news, and at this point, people are wondering if they can rebuild their lost fortunes and trust in Terra.

The LUNA/UST crash has spread like wildfire among the crypto economy and has everyone questioning the viability of stablecoins, and sent Bitcoin into a tailspin falling below $30,000.
Regulators are paying attention. Janet Yellen, the US Treasury Secretary, named UST when she asked Congress to create regulations around stablecoins. “I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate,” she said.

Can Tether tough it out?

Stablecoin Tether lost its US$1 peg, dropping to 95 cents briefly as markets and investors reacted to the UST crash, prompting questions about how secure the asset-backed cryptocurrency truly is.

What happened: The world’s largest stablecoin by market cap fell victim to the tide of panic that swelled in crypto investors, de-pegging it for the first time since spring of 2020, though it has recovered (mostly) and, as of this writing, sits at 99 cents.

Tether has over 80 billion tokens in circulation per CoinMarketCap, and it should have $80 billion in assets to prop up its value. The private company has not revealed how reserves are managed, with CTO Paolo Ardoino saying he does not “want to give [away] our secret sauce.” He did tell The Financial Times that 50% of the reserves are held in US Treasury bills.
Ardoino does seem confident in the collateralized tokens. On Thursday morning, he tweeted that Tether was “honouring USDt at $1” and “300M redeemed in the last 24h without a sweat drop.”
But in 2021, the company was fined $41 million by the US Commodity Futures Trading Commission for making “untrue or misleading statements and omissions” claims about its collateralized assets.

Why it matters: “In the last 24 hours alone, Tether has honoured over 300m USDt redemptions and is already processing more than 2bn today, without issue,” the company wrote. “Tether is the most liquid stablecoin in the market, backed by a strong, conservative portfolio that consists of cash & cash equivalents,” adding that the value of its reserves is published daily.

However, The Guardian reports that $2 billion is “half of the company’s cash on hand.” If liquidations continue, it could be in a position where it needs to force repayment of loans it has made to other crypto companies, putting them and their investors in a precarious financial situation.
Fears are that it could collapse entirely, following UST’s suit, and its implications across the entire economy as stablecoins serve as a “safe place” for investors to hold their cash between volatile market periods.

🙋 What the FUD?￼

Terra-fying

Can Tether tough it out?

Bits & Blocks

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