Key Takeaways:
- Terra’s governance token LUNA dropped in association to the Wonderland controversy.
- The token fell 28% week-to-date, and attempted to recover on Jan 29.
YEREVAN (CoinChapter.com) – Terra (LUNA) soaked up some of the collateral damage caused by money market Wonderland in the previous week. A few key details further explain what happened and how the ruckus affected LUNA.
Terra is a stablecoin issuance protocol. Its main stablecoin is UST, pegged to the US dollar. In order to mint UST, the protocol burns LUNA tokens. Thus, the two are closely entwined. When UST is unstable, so is LUNA.
In detail, the UST suffered instability in association with the MIM stablecoin, soft-pegged to the dollar and minted by the lending platform Abracadabra. As Abracadabra users can stake UST to lend out MIM, the controversy affected both.
Also read: Terra nears decisive breakout as LUNA price rises on a bloody crypto day.
In hindsight, MIM is one of the largest algorithmic stablecoins with a circulating supply of over $4.6 billion. However, after the Wonderland story blew up on Thursday, MIM could lose its dollar peg. Colin Wu, a crypto reporter, tweeted about the connection, saying it “poses a danger” to the Terra ecosystem.
Abracadabra and Wonderland share the controversy.
After establishing the connection between Terra and Abracadabra, it is time to understand what happened to Abracadabra and Wonderland, the primary commotion source.
The protocols share a founder, Daniele Sestagalli, and run under the same collective of projects: the Frog Nation. Additionally, they prepare to merge to “revolutionize the DeFi landscape.
By combining Abracadabra’s lending infrastructure with Wonderland’s well-diversified treasury and yield producing strategies, incredible performance efficiencies can be achieved
commented the Wonderland team.
Moreover, the protocols also share an affiliation with a developer under the pseudonym “Sifu,” who is at the heart of the controversy. A Twitter user exposed “Sifu” to be Michael Patryn.
Also read: Selloff risks cloud Terra as LUNA rallies over 90% in just eight days.
In short, Mr. Patryn was the co-founder of the infamous Canadian crypto exchange QuadrigaCX. The latter collapsed in 2019 and defrauded investors of over $190 million, which the co-founder claimed he lost access to.
Mr. Patryn is allegedly a serial scammer, as he has several convictions and deportation on his record. In detail, he pleaded guilty to bank and credit fraud in 2005 and admitted to burglary, theft, and computer fraud in 2007. As much as Daniele Sestagalli believes in “giving people a second chance,” the users took the issue seriously and lost their trust in Wonderland.
Its native token TIME fell over 30%, as did MIM, and UST, leaving LUNA under fire as well.
What does it mean for LUNA?
In detail, Terra’s governance token fell 28% since Monday and 14% since the Wonderland story exploded on Thursday. However, the charts planted a green candle on Saturday, and LUNA/USD exchange rate stood at $52.9.
The digital asset held the crucial support at $50.0 but traded 52% lower than its all-time high of $103 on Dec 27.
Furthermore, due to a bearish pattern dubbed Head and Shoulders, LUNA might face a further decline. In detail, the Head and Shoulders setup consists of three consecutive tops, connected at the base with a mutual Neckline. After an asset completes the second shoulder, it could fall below the Neckline.
Also read: Liquidity Holes create bear traps for speculative Equities and Bitcoin.
The pattern predicts that fall to be equal to the distance between the Neckline and the Head. If the prediction pans out, LUNA could drop to $34.0.
