[May Week 2] PEN TALK
📌 Kakao blockchain ‘Klaytn’… Projects leave the ecosystem one after another
📌 Interest rate hike and economic recession fears… “Bitcoin collapses at $35,000”
📌 Depegging of UST and rapid decline of LUNA
Kakao blockchain ‘Klaytn’… Projects leave the ecosystem one after another
For Koreans, the price of ‘KLAY’, a coin made by Kakao, is constantly falling. In addition, the Klaytn ecosystem is in crisis as many Klaytn-based services have departed due to frequent network failures and fee increases.
According to CoinMarketCap, Klay has grown tremendously, reaching a high of $4.2 in March 2021. As of May 11th, it has dropped to a ridiculous price of $0.5. This phenomenon has left investors moaning here and there.
Klaytn has caused inconvenience to users due to frequent network failures and transaction delays whenever there is a large amount of traffic. In March 2020, the Klaytn mainnet block was not created, causing it to crash for over 40 hours, and some services suffered damage, such as being hacked. Klaytn raised the gas fee as a way to prevent network disruption by blocking false transactions by bots, but the burden was passed on to users, and the transaction volume subsequently decreased to 1/10 level.
In addition to various problems such as mainnet failures and fee increases, many people are talking about Klaytn’s ‘global scalability’ every day. In fact, many projects are declaring their departure from Klaytn, judging that they lack the capacity and limit to expand globally. Krust, the operator of Klaytn, said that it is focusing on strengthening competitiveness by preparing ‘Klaytn 2.0’, which lowers fees and promotes the metaverse trust layer in order to avoid the crisis.
Since there is no domestic(Korea) platform that can replace Klaytn right now in the blockchain industry, the Klaytn-based ecosystem is expected to continue for a while, but it seems necessary to keep an eye on Klaytn’s trend, which is still noisy.
Interest rate hike and economic recession fears… “Bitcoin collapses at $35,000”
With the United States in the lead and concerns about interest rate hikes and economic slowdowns in countries around the world, major cryptocurrencies, including Bitcoin, have plummeted all at once. Bitcoin broke through $68,000 in November 2021, and has set a new high. However, it continued to decline due to uncertainty surrounding this year’s interest rate hike, and recently plummeted to about $30,000. It is also very unusual for Bitcoin to drop below $30,000 for the first time since July of last year.
The interesting fact is that even in this situation, the buying trend of Bitcoin on domestic(Korea) virtual asset exchanges, including Upbit, has increased. This is proof that many Korean investors regard the plunge as an opportunity.
As Bitcoin fell below $30,000, a large number of low-priced purchases flowed in and recovered to some extent, but the charts are still unstable on roller coasters. According to CoinDesk, a media specializing in cryptocurrency, Bitcoin’s support line will be $30,000 and its resistance line will be $35,000 for the time being. Likewise, industry experts expect Bitcoin to continue to decline as the stock market and the cryptocurrency market, which have been hit by interest rate hikes, continue to synchronize.
Depegging of UST and rapid decline of LUNA
As the virtual asset market continues to weaken overall due to interest rate hikes and the war between Russia and Ukraine, Terra is emerging as a hot potato this time. The global virtual currency market has been shaken as Terra’s LUNA and the stablecoin Terra (UST), both of which are considered the representative blockchain projects in Korea, have plummeted day after day.
The stablecoin UST, designed to be pegged one-to-one with the US dollar using an algorithm, continues to depreciate below the dollar. As of May 11th, it dropped to 0.3 USD (about 380 won). As a result, the sister coin Luna, which was traded at $80 until last week, also faced a dire situation where it plummeted to less than $1.
Various analyzes and forecasts are coming out due to the sharp decline in the UST. In the industry, it is pointed out that it is a “Ponzi scheme,” and some are of the opinion that the forces betting on the Luna and UST price declines were aggressive and continued to cause large-scale sell-offs. Until now, the Terra Foundation has maintained the value of UST by directly controlling the circulation of Luna, but this time it failed to defend it and it was difficult to recover.
Terra CEO Kwon announced that he would defend the pegging of UST by using $1.5 billion in Bitcoin with Terra as collateral to resolve the UST and Luna crash. However, it remains to be seen whether these measures will be effective as the decline continues after the announcement.
This price drop may pose a risk to financial stability, so the discussion on regulations related to stable coins is accelerating. In addition, as the UST price does not recover $1 and Luna continues to fall, Upbit and other exchanges are designating Luna as a cautionary item to protect investors. There are even rumors about Luna’s delisting. We need to wait and see how long the crisis of Terra, which was widely regarded as Korea’s representative K-coin, will continue and how the Terra Foundation will overcome the situation.