How Did AI Respond To The Terra (LUNA) Meltdown?
Case Study of AI trading bots versus Terra (LUNA) during the May, 2022 crypto crash.
When Terra’s ecosystem, which included its native coin LUNA and algorithmic stablecoin TerraUSD (UST), went down, it sent shockwaves through the blockchain and cryptocurrency world as a whole.
Not only did the value of terra-ecosystem tokens like Anchor’s ANC drop, but widespread fear, uncertainty, and doubt also sent the market-leading cryptocurrencies Bitcoin (BTC) and Ether (ETH) below $27,000 and $1,800, respectively, on some exchanges.
A huge blow to industry confidence
The collapse of the LUNA and UST crypto-currencies wiped out a lot of people’s fortunes. Not only hedge funds didn’t know about the risks of staking algo-stablecoins, but so did regular users. Some even lost their life savings.
Regulators took the bait.
The collapse of the Terra coin is fuel for crypto critics in Congress. The lack of regulations, user protections, and risk-mitigation systems is cited as part of the reason behind its collapse.
Senator Elizabeth Warren has said that “shadowy super coders” and criminals are in charge of decentralized finance and cryptocurrencies. Together with Senator Tina Smith, the lawmaker wrote that investing in cryptocurrencies is risky and speculative.
AI Trading Bots’ Response To LUNA
On May 7, 2022, LUNA started its descent from $80 per token to oblivion. On May 11, it reached $1, and the next day it was $0.01, which disappointed all the project investors.
One Button Capital traded LUNA market pairs at the time, and a few strategies were still in use during the bleeding period. How did they react?
The first market reaction we observed was by the Performer v2 strategy trading on the LUNA: BUSD pair. On May 9, 20:05, the robot sold its LUNA position completely at $59.30. On May 10, just after 17 hours, the price of LUNA was already at $29.65, saving the investor from a -50% loss.
The second notable account of LUNA trading is held by the Clipper AI strategy, quitting the position on May 8 at $65.93 per LUNA and riding it all the way down to $3.90 and not trading ever since.
Another interesting situation happened to the strategies that traded LUNA until it reached its lows on May 14. One of the Performer v2 bots entered a position at around $0.0001, buying more than 600,000 LUNA. On the same day, the price of LUNA went up by more than +200%, giving the user an incredible ROI and offsetting previous losses.
Another example shared by one of our community members, Noidea, revolves around the trailing stop-loss feature available on the OBC app. On May 7, the “emergency brake” was triggered on the LUNA: USDT market pair — all the LUNA was sold at $75 and the strategy was deactivated. We all know what happened after that.
Here is the feedback by Noidea himself:
It’s important to keep in mind that manual stop-loss and automatic trailing stop-loss are both important risk management tools that can be used with the OBC app’s premium features. Those can be extremely useful instruments during times like these and save investors from “black swan”-type outlier events like what happened with LUNA.
Can (Un)stable Coins Crash The Market?
In light of the UST debacle, investors may be wondering how successful stablecoins will be in their role of providing liquidity to the crypto market.
The UST crash has caused investors to question their trust in the stablecoin structure. The way other stablecoins work will also be called into question, Chis Skinner, a fintech expert, says. Investors should do their research and make sure they understand the risk and exposure involved, he adds.
The good things from the situation:
The UST crash could boost other stablecoins like USDC and USDT. Adil Abdulali, head of portfolio management at Securitize Capital, says it will allow other stablecoins and algorithmic experiments.
Abdulali compares stablecoin competition to “survival of the fittest,” with enduring projects growing stronger. “It’s a competitive space that innovates,” he says. Markets move quickly, and failing projects are abandoned.
“When the community loses confidence and there’s a run on the currency, everyone taking their money out pulls the rug on the marketplace,” Skinner says.
Concerns about retail investors
Investors must treat stablecoins like any other investment. Even if a person is confident that he will not lose his investment, there is always a risk. While stablecoins are a great way to keep your free capital when markets are not favorable, it is still better not to put all of your eggs in one basket.
LUNA and UST meltdowns have been terrifying experiences for all the people invested in the project. This event highlighted the importance of risk management and portfolio diversification when investing in cryptocurrencies. When within 24 hours the value of your portfolio can go down by -99%, you never want to leave yourself unprotected.
By at least using automated trading tools and stop-losses, investors can already insure that their accounts will not vanish.
One Button Capital’s automated trading strategies handled the LUNA crash to a moderate extent, with some of the strategies selling off before the crash or exiting positions completely due to (trailing) stop-loss.
It is also worth noting that the OBC AI strategies don’t do fundamental analysis and trade purely on market data. So the fact that the strategies exited the market completely based exclusively on technical data makes it even more fascinating.