What is Terra
Terra is a blockchain platform that supports the creation of stable coins, including UST (a stable coin pegged to the US dollar).
Anchor Protocol is a lending platform built on the Terra blockchain that allows users to earn high yields on their deposits in UST.
The collapse of Terra caused a ripple effect across the space, leading to the inability of borrowers to repay their debts and lenders and traders to suffer losses
What is Celsius
Celsius is a lending platform that allows users to earn interest on their cryptocurrency deposits. Celsius and other lenders in the space were borrowing UST from Anchor Protocol and using it to fund their own lending activities, paying back interest to Anchor Protocol in UST.
FTX and Alameda Research in Short
Alameda Research is a quantitative trading firm and the parent company of FTX, a cryptocurrency exchange. Alameda had exposure to UST and Anchor Protocol through their lending activities.
When the collapse of Terra happened, the value of UST plummeted, causing a hole in balance sheets across the space. As a result, borrowers (like Celsius and other lenders) were unable to repay their debts, and lenders (like Anchor Protocol) were left with collateral that was worth much less than the loans they had extended.
Alameda and FTX also found themselves in a similar position, as they had overleveraged themselves at inflated values when the markets turned around.
So What Happened Exactly?
UST was supposed to always be worth the same as regular US dollars. So people invested in it and company sent loans assuring people that the UST will always have a value exactly as US dollar flat currency.
But then, UST’s value dropped and it started to lose value which showed it can’t keep up with the US dollar. This caused big problems for Anchor and for other companies that were using UST to lend money to people. People who borrowed money couldn’t pay it back because they didn’t have enough value. Also, companies fond themselves in similar situation, they had borrowed a lot of UST and used it to make other investments which caused them to lose a lot of money.
When things got really bad, some companies like Celsius (which lent out other people’s money to earn interest) and Alameda/FTX (which invested heavily in UST and Anchor) also started losing money and having trouble paying back what they owed.
In conclusion, what I would suggest is the same what John Oliver has said in his Last Week Tonight Show and what we keep bringing up: Don’t invest before checking all the red flags and do not invest in ANYTHING if you are not ready to lose. Unfortunately, chances to recover from Terra crash, FTX and Celsius investments are basically zero.
Check out his funny and educational video to learn more, stay safe and invest smart.
Disclaimer: Investing can be quite a wild ride – especially when you don’t know the terrain! To keep things from getting too rocky, take some time beforehand to get familiar with all of the risks involved. Our site is here to up your investor game by providing all available intel about platforms and trends, but we don’t take responsibility nor can we be held accountable as advisors. That being said, it’s still important for you to make educated decisions that match what works best for YOU – just remember: no amount of savvy will guarantee success or protect against loss so invest money you can afford losing.
