SwissBorg report explains cause of the “death spiral” of UST |

The US dollar (USD) is on the verge of a “death spiral” caused by excessive debt and inflation, resulting in an inevitable devaluation. The SwissBorg project aims to solve this problem through crypto-currency backed loans.

The “luna ust risk” is a report that explains the cause of the “death spiral” of UST. The report also includes a list of recommendations to avoid this issue in the future.

SwissBorg, a crypto exchange located in Switzerland, has published a research on the hazards associated with Terra’s stablecoin, UST. The coin is presently experiencing severe volatility, with a price of The Swiss-based crypto exchange, SwissBorg, has released a report on the risks surrounding Terra’s stablecoin, UST. The token is currently undergoing extreme volatility, trading at just $0.59 at writing. SwissBorg issued a risk warning to users on May 10 and paused withdrawals of UST on the same day, hours before Binance followed suit. The report was completed in April, and almost all of the risks they identified are currently playing out..59 at the time of writing. On May 10, SwissBorg issued a danger warning to customers and halted UST withdrawals, hours before Binance followed suit. The assessment was finished in April, and practically all of the dangers that were highlighted are now being realized.

TerraUSD’s Risks (UST)

UST is an algorithmically baked token, unlike other stablecoins like USDT or USDC, which are backed by cash collateral and other liquid assets. has gotten a report on UST hazards from SwissBorg’s DFi team. “Users on Terra may burn $1 of LUNA to manufacture 1 UST at any moment, or burn 1 UST to redeem $1 worth of LUNA,” according to the study. As a result, the fates of UST and LUNA are intertwined, as are the dangers.” Importantly. It identified four major risk areas:

  • A UST death spiral -TerraLuna
  • Anchor Protocol’s dangers
  • UST has lost its peg.
  • A default model that is structured.

UST-death TerraLuna’s spiral

SwissBorg described a possible “death spiral” between TerraLuna and UST, in which LUNA would fail and UST would face a bank run. LUNA has down 90 percent since May 9, showing that this scenario is now playing out, with UST down 30 percent. The death spiral is explained in depth in the study.

“If the price of LUNA falls, UST holders may be concerned that the UST peg is in jeopardy and elect to redeem their UST holdings.” To do this, UST is burned and LUNA is coined and sold on the open market. This would accelerate the price drop in LUNA, causing additional UST holders to dump their holdings. The ‘bank run’ or ‘death spiral’ is the term for this destructive cycle.

SwissBorg report explains cause of the “death spiral” of UST |UST Risk Report from SwissBorg

Risk of Anchor Protocol

The Terra ecosystem platform Anchor Protocol has a lot of interest in UST staking. In recent weeks, the platform has offered up to 19 percent, with a high TVL of about $15 billion. The TVL has dropped dramatically in recent days, with both deposit and borrow prices plummeting.

SwissBorg report explains cause of the “death spiral” of UST |Anchor Protocol (source)

“If the price of LUNA (and bLUNA) decreases, this might trigger a liquidation of the LUNA collateral holdings,” SwissBorg said. The UST would then be burnt back into LUNA, causing the LUNA price to drop even further.”

According to reports on Twitter, many Terra Station investors have been unable to access their wallets owing to network congestion, resulting in liquidations.

Users have been unable to deposit monies to reduce their LTV because to a lack of access to wallets, necessitating liquidation. The sharp drop in the price of LUNA over the last week looks to be largely due to this. “Any difficulty with Anchor would certainly generate a cascade of UST redemptions with all the repercussions already highlighted,” SwissBorg wrote in its study.

UST has lost its peg.

“A death spiral accompanied with a cascade of liquidations in Anchor might force the market capitalization of LUNA to fall below the market capitalization of the circulating UST,” according to Swissborg. As can be observed on the coin tracker, LUNA’s market worth has now dropped to approximately $370 million.

SwissBorg report explains cause of the “death spiral” of UST |Source:

This position, according to SwissBorg, is strongly linked to the likelihood of UST de-pegging. This is simply one of the elements impacting the Terra ecosystem in the present state of play. The graph below depicts an occurrence in May 2021 in which the market cap breached for a short time, as well as the impact on the UST peg.

SwissBorg report explains cause of the “death spiral” of UST |UST Risk Report from SwissBorg

Default model with structure

The Merton model for measuring default risk was recognized by SwissBorg as being applicable to an evaluation of the risks connected with UST.

“The Merton model is structural in that it employs the Black-Scholes-Merton option pricing techniques and offers a link between default risk and the firm’s asset (capital) structure.”

As seen in the diagram below, the Merton model’s complicated formula analyzes the risk of an asset dropping below its obligation level.

SwissBorg report explains cause of the “death spiral” of UST |UST Risk Report from SwissBorg

The analysis calculated the likelihood of UST losing its peg in the Terra ecosystem.

• The market capitalization of LUNA represents asset value A. • If Luna’s market valuation is lower than UST’s at a specific time horizon T, the UST peg is lost.

The accompanying graph depicts the chance of UST losing its peg on a daily basis. The chance increased to just about 100% in May 2021, before dropping to 20% in November. As of April 2022, the danger has slowly increased to 60%. With a current price of The above data was charted to show the probability of UST losing its peg daily. In May 2021, the risk rose to just under 100% before falling back to 20% in November. The threat had been steadily rising to 60% as of April 2022. At present, UST, trading at $0.59, has definitively lost its peg..59, UST has officially lost its peg.

Conclusions of risk

“The destiny (and hazards) of UST are inextricably tied to those of LUNA,” SwissBorg concluded. Any convergence of LUNA’s market capitalization with that of UST creates a severe danger of the peg being lost.” Their advice was to keep an eye on UST’s relationship with LUNA, keep an eye on Anchor Protocol’s TVL for signs of collapse, follow market volumes for LUNA to maintain liquidity, and keep an eye on demand for Terra stablecoins.

All of these criteria are currently true. LUNA has plunged 90%, UST has lost 30%, Anchor Protocol TVL has dropped 60%, while demand for Terra stablecoins has remained unchanged. Furthermore, a reduction in the entire market capitalization of crypto has created the ideal storm for a black swan event in the Terra ecosystem. Will Terra weather the storm, or will tens of billions of dollars in tokens be wiped off the face of the planet?

Regardless of whether Terra is able to recover, many investors will be unable to do so owing to Anchor Protocol liquidations.

And it’s not a tiny sum, $133k was all I had, truly, this garbage has wiped me out save for a few thousand in savings. I’m screwed ten different ways to Sunday.

May 11, 2022 — Wicklidation (@Joe Cool Bitmex)

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The “coin yuppie” is a term used to describe the phenomenon that many cryptocurrencies have experienced. The SwissBorg report explains the cause of this phenomenon, and how it can be fixed.

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