Are the rumors about the LUNA crash resulting in Binance Founder “Zhao” with nothing left true?

by | Jul 6, 2022 | Market, Market News, News | 0 comments

Changpeng Zhao is the founder and CEO of Binance, which is the largest cryptocurrency exchange in the world. It became so by trading volumes. Its daily average volume is over two billion and it conducts over 14 lakh transactions every other second. It is a platform that is open 24 hours, 7 days per week.

 Many have reason to speculate that Zhao has suffered huge losses due to the LUNA crash resulting in Binance Founder “Zhao” with nothing left.

A few days after the crash, Zhao took to his Twitter account his thoughts, and tweeted that he was “poor again”. This might hold some truth to it as Zhao stood to lose billions of dollars in cryptocurrency money following the market crash which was indirectly caused by the LUNA crash.

LUNA’s value fell from 1.6 billion US dollars to 2,200 US dollars. This fall in value took place over a month. The LUNA crash resulting in Binance Founder “Zhao” with nothing left also impacted the crypto market negatively. The collapse of LUNA caused the crypto market losses of up to 40 billion US dollars. Zhao stated that Binance held 15 million tokens of LUNA, which were obtained by the cryptocurrency exchange in return for the 3 million US dollars of investment that Binance had made in the Terra network (the network which founded LUNA).

When TerraUSD (LUNA’s sister coin), which was soft-pegged to the US dollar was debugged, LUNA’s value was lost too. Since the prices of both the coins are linked, when TerraUSD crashed, so did LUNA.

While claims stated that the LUNA crash resulted in Binance Founder “Zhao” with nothing left, although not entirely true or accurate, it does hold some truth to it. Despite claiming that he was poor, Zhao still has a net worth of 14.9 billion US dollars.  

Another one of his tweets stated that Terra should make reimbursing its retail users their top priority.

Changpeng Zhao stated that there is always a chance of collateralization depending if you peg to one asset and use another asset as collateral. Over collateralization by 10 times can cost an equal amount of loss and nothing can be stable.

He also expressed his opinion stating that thinking excess minting of an asset leads to the increase in value of that respective asset is not the brightest idea. Minting excessive LUNA contributed to making the situation even worse because in doing so, the value of LUNA was diluted for the existing shareholders.

According to Zhao, other than excessive minting, a fierce incentives policy is another reason which contributed to the crash of LUNA. Although it attracts investors, it’s not the most ideal policy for stability.

Zhao has also stated that had Terra used its reserves to peg the cryptocurrency to the fiat currency when it fell by 5 percent, the entire incident would have been avoided and people wouldn’t have had to face such huge losses, and eventually, the cryptocurrency market crash would not have taken place.

Even though Terra has put forth a LUNA recovery plan, Zhao is not impressed.

The LUNA recovery plans imply the formation of a new LUNA token on a new Terra blockchain (Terra 2.0), which is to fork from the existing Terra blockchain.

Zhao took to Twitter on behalf of the Binance team and urged the Terra team to restore the network and burn the excessively minted LUNA to recover the peg to the US dollar. This way there would be no new need for a new blockchain or a new cryptocurrency and everything will return to the way it was.

Despite Zhao’s urges, Terra has chosen to go ahead with its original recovery plan to reinstate the peg.