UST Crypto Crash Wakeup Call

UST’s Crash is a Wake-up Call

On May 5, 2022, the Federal Reserve announced a 50 basis point interest rate hike. Five days later, Luna, the world’s top algorithmic stable coin, with a market cap of $40 billion, fell apart at an unprecedented rate， crashing more than 99% within a day. This again proves that, in the crypto world, nothing is too big to fail.

What Happened with LUNA and UST?

Terra is a blockchain network created using the Cosmos SDK and dedicated to creating stable currencies. The largest algorithmic stable currency on the Terra chain is UST, while LUNA is the native point-of-sale token on the Terra blockchain. According to data from Coingecko, UST’s market cap is just below USDT and USDC, making it the third largest stable coin in the crypto market.

So what’s the difference between UST, USDT, and USDC? UST is an algorithmic stable coin, its peg to the US dollar is maintained by a series of automatic minting and destruction mechanisms. In theory, these mechanisms should ensure that traders can always exchange $1 worth of UST for $1 worth of LUNA. LUNA’s price is designed to act as a “buffer” against UST price fluctuations.

Before the crash happened, the market value of LUNA has always been much higher than the market value of USTs, which has led to the fact that if LUNA’s price falls, it would leave enough liquidation space to avoid the extreme situation of insolvency. However, as a result of the continued volatility in the cryptocurrency market recently, LUNA’s price has fallen more sharply than ever before. Its latest market cap is only US$10 billion, while UST’s latest market cap isUS$15 billion. This abnormal situation has caused a panic selling of LUNA in the market, which further lowered LUNA’s price and brought it into a death spiral.

UST’s Achilles’ heel is that its anchor with USD is entirely backed by a cryptocurrency. Cryptocurrency is by nature highly volatile and unpredictable, without a steady stream of external funding, the stability of such a system is nothing more than a wishful illusion.

Trust is a fragile thing in the crypto world

Once a stable coin protocol fails to effectively support the value anchor, or the issuer of the stable coin loses public credibility, it can undermine confidence in the entire stable coin model, lead to panic selling occurring among users, and ultimately the token might fall into an irrecoverable death spiral.

No one likes to suffer losses, but people have a herd mentality. The unfortunate event of UST and LUNA has caused great damage to crypto market consensus, affecting not only algorithmic stable coins, but also other types of crypto tokens as well, especially those high-market cap alt coins that were a venture capital favourite not long ago.

The flash crash of UST is also a message to investors that in the crypto world, nothing is too big to fail. Without a solid value consensus and reliable asset support, any token can become worthless overnight.

Invest in certainty in a time of uncertainty

Investing is essentially finding certainty in uncertainty. The flash crash of UST may change the investment preference of many people in the cryptocurrency world. After all, no one can escape the magic spell of the impossible triangle: profitability, safety, and liquidity. There must be risks lurking behind high returns, and the ideal target for investment must be assets backed by genuine value.

Bear is looming on the horizon, in the upcoming month, personally, I believe mining is the best method to hold out this winter.

After more than a decade of development and evolution, the crypto mining industry has been gradually standardized, professionalized, and standardized in all aspects.

Unlike spot trading, crypto mining is traditionally a low-risk and low liquidity investment. Miners need to invest large amounts in fixed assets such as mining machines and mining farm equipment. These physical assets are valuable by themselves, and the token would be well supported by these fixed values. The price fluctuation of cryptocurrencies produced by mining is relatively small, and the risk resistance is also much stronger.

Warren Buffet once said, “Compound interest is the greatest invention of mankind, the most powerful force in the universe, the eighth wonder of the world, and the most reliable way to grow wealth.” The essence of mining is creating a stable passive income. The essence of creating a passive income is to choose a token that is certain to go bullish in the long run, to start investing early, and enjoy the investment returns from rising token prices over an extensive time period.

Which cloud mining platform is the best for beginners?

At present, there are two ways to participate in crypto mining: purchase your own mining machine and take care of its operation and maintenance all by yourself, or purchase cloud mining power/hash power through a cloud mining platform and skip all the hassles. Method 1 requires a lot of expertise and a cheap, stable power supply. Method 2 is much simpler and beginner-friendly. There are two mainstream cloud mining platforms: bitdeer.com, which operates centrally, and DMEX (dmex.finance), which is decentralised mining platform.

Founded in late 2018, Bitdeer is a world-leading cryptocurrency mining community technology company. Headquartered in Singapore, it currently operates five proprietary mining data centres in the US and Norway. It has partnerships with all five major mining pools — fishpool (f2pool), antpool (antpool), btc.com, viabt, b.top — and occasionally launches joint campaigns with mining pools. Bitdeer requires users to provide detailed KYC information when signing up, it ranks high in terms of background and transparency of information.

DMEX was established in 2021. It provides crypto mining hash power NFT for crypto assets such as BTC, ETH, and IPFS/Filecoin. DMEX also supports multiple DeFi protocols such as mining power NFT collateral loan, Defi term deposit, and various joint mining pools. DMEX’s reputation among small and medium-sized investors is growing rapidly.

Overall, Bitdeer has excellent transparency, and security, and they do occasionally have cloud computing power products in several new tokens other than Bitcoin for users to invest in. However, Bitdeer do require users to pay all electricity costs on top of their package price. Also, investors do not actually own their cloud miners, this is a potential risk to be noted.

DMEX has the advantage of providing crypto mining hash power as NFTs to provide easy purchase and transfer. DMEX also incorporates multiple DeFi applications to expand users’ investment options.DMEX is operating as a DApp, users can complete all operations directly through their wallet app authorizations. Also, DMEX users do not need to pay for electricity separately, this is convenient and more beginner-friendly. DMEX’s biggest shortcoming is that some of its products are only open for a limited period of time, and the supply is often insufficient due to high demand. In terms of mining power NFRT asset liquidity, their built-in mining power marketplace is a handy feature.

The advantages and shortcomings of both platforms are obvious, both platforms are a solid option to meet the basic crypto mining needs of average users.

Finally, a few thoughts. the UST black swan event has hit the market sentiment hard, but I’m certain that the crypto market will still regain its composure soon. Crypto will remain mainstream for decades to come, it might just switch to a different narrative logic.

My personal reflection is that I believe that in the past decade. the crypto industry has been overly focused on “economic models”, with all sorts of scam tokens and Ponzi tokens hiding behind the name of innovation. For now, whether we are in a bear market or a bull market, don’t forget to invest some of your assets in crypto mining, invest in assets that are backed by genuine value, and keep a stable passive income pathway for yourself at all times.

Disclaimer:

This article is contributed by DMEX’s community volunteers. This article consists of personal opinions and/or analyses of the DMEX project. None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product, or financial instrument, to make any investment, or to participate in any particular trading strategy.

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