The recent collapse of the TerraUSD (UST) stablecoin surprised the crypto market. For people who saw Terra as a more secure asset compared to other more overtly volatile cryptocurrencies, and invested heavily in the coin or its Anchor protocol, they now have to deal with the aftermath as they let go of assets to try and get it right. make for their lost nest eggs.
A report from The Wall Street Journal on Friday told the stories of several of these investors, including a doctor who explained how TerraUSD’s fall affects his family’s future.
Keith Baldwin, a 44-year-old surgeon living outside of New Bedford, Massachusetts, has saved $177,000 over the past decade. Last year, he took his savings and bought USD Coin, putting it into a crypto account that yielded a 9% annual return.
In April, he moved it to a TerraUSD pseudo savings account that offered 15%. More than 90% of his savings disappeared in a few days when TerraUSD lost its peg to the dollar. dr. Baldwin said he was unaware that Stablegains, the start-up that ran the account, converted his holdings of USD coins into TerraUSD. (USD Coin has kept its $1 peg.)
When Dr. Baldwin heard that TerraUSD’s troubles were threatening his nest, he rushed to withdraw his money from Stablegains. Hours passed while the site was processing the transfer. By the time she gets to Dr. Baldwin landed on the Kraken crypto exchange, the coin traded for just 14 cents.
dr. Baldwin does not consider himself a crypto enthusiast. He had hoped to spend the money on a house. Now he has cut back so that he can still save for the education of his children. “I don’t want to punish our children for the mistake I made,” he said.
A report from Rest of the world examined the devastating effects of TerraUSD’s decline on people outside the United States, in Argentina, Venezuela, Iran, Iraq and Nigeria, who saw the stablecoin as a way to store their money that could handle inflation better than their often volatile local currency. Many of them reported learning about crypto through YouTube and said they believed in its safety because it was traded on popular exchanges such as Binance.
A woman from Buenos Aires said she invested after months of researching Terra, but lost all her savings (about $1,000) in the crash. The piece quotes a man from Pakistan as saying, “I have nothing left, not even a cent.”
We explained the arbitration between Terra and its sister token Luna, which was supposed to keep the value of UST at $1, and the tricky Anchor savings protocol associated with it. As the value of UST shifted above or below that mark, holders could burn one of the sister tokens to balance things out (for every 1 UST made, $1 worth of Luna is destroyed, and the same in reverse) and a small make a profit in the process.
Investing your UST in the Anchor protocol promised an annual return of nearly 20 percent because it would lend your money to someone else in exchange for collateral, and you would pay back the return on their collateral and the interest on the loan. Both deposits and interest were in UST. However, investing in Anchor meant it took even longer to get your money out as the value of UST and Luna fell after an unusually large transaction sparked a death spiral†
According to Bloombergboth Terra and Luna are close to a relaunch (which will change the original currency names to Terra Classic and Luna Classic) in an effort to rebrand their corporate blockchain and become attractive to investors and traders alike just a few weeks after the collapse.
Shame reports that the crypto industry is showing clear signs of instability, but crypto-native venture capitalists with nowhere else to go continue to invest billions in drastic steps.
You can read the articles from The Wall Street Journal here and Rest of the world here.