According To Willy Woo, Terra Foundation Created “Death Spiral” On Its Own Stablecoin

Willy Woo, a leading on-chain expert, has identified a serious fault in Terra’s UST design that may have resulted in a “death spiral” for both LUNA and UST assets.

Woo noticed the major flow in the backing mechanism, in which the Luna Foundation Guard pledged to sell its BTC holdings in favor of UST, which should have boosted the stablecoin’s value and relieved pressure on Luna.

However, the reality differs significantly from what was predicted on paper. The Luna Foundation Guard possessed billions of dollars of Bitcoin, which it instantly dumped on the bleeding market, causing a panic among market makers and investors.

LFG’s increased selling pressure prompted a BTC meltdown, which drove the entire market down with it, including LUNA. With increased Bitcoin market dominance, Luna continued to plummet, thereby putting LFG into a death spiral in which LFG would have to sell more BTC and Luna would collapse, taking UST down with it.

LFG’s actions were contradictory, according to Woo.

Accelerated the de-peg because of Terra’s backing mechanism

A less destructive and possibly accurate way of dealing with the problem would have been a cautious and consistent injection of cash into UST, which would have put less pressure on the market in general, and Luna in particular.

Luna has lost nearly all of its value as of press time, and is now worth less than one penny. UST, an algorithmic stablecoin, is now trading around $0.1 and requires a 1,000% gain to return above the peg level.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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