Never again LUNA Terra UST collapse!

If you have been in crypto since before 2022, you may remind the name of Luna and UST(Terra USD) as powerhouse of high yield stablecoin staking.

Unfortunately both Luna and UST has crashed rapidly on incident started from May 7 2022 and lost it's popularity since then, but we strongly believe there are much better way of building high yield stablecoin staking protocol than Luna UST, and that is the reason we have started building HYDT Protocol at first place, and continue working on the project until now to make DeFi world great again by providing higher APY at lower risk.

What was Luna and UST, happened to them?

What was Luna and UST

According to Forbes, TerraUSD (also known as UST) and Luna are two sister coins on the same network. Terra is a blockchain network, similar to Ethereum or Bitcoin, that produces Luna tokens. The network was created in 2018 by Do Kwon and Daniel Shin of Terraform Labs.

Terraform Labs created the UST coin to be an algorithmic stablecoin on the Terra network.

While other stablecoins (USDC or Tether) are fiat-backed, the UST would not be backed by real assets. Instead, the value of UST would be backed by its sister token, Luna.

The largest incentive buying UST was that you could stake your UST holdings on the Anchor lending platform for a 20% annual yield.

What happened to Luna and UST

According to Forbes, on May 7 20222, over $2 billion worth of UST was unstaked (taken off the Anchor Protocol), and hundreds of millions of it were quickly liquidated. There’s debate as to whether this happened as a response to rising interest rates or if it was a malicious attack on the Terra blockchain.

The huge sell-offs brought down the price of UST to $0.91, from $1. As a result, traders started to change 90 cents worth of UST for $1 of Luna.

Once a large amount of UST had been offloaded, the stablecoin started to depeg. In a panic, more people sold off UST, which led to the minting of more Luna and an increase in the circulating supply of Luna.

Following this crash, crypto exchanges started to delist Luna and UST pairings. Long story short, Luna was abandoned as it became worthless.

How HYDT Protocol avoid collapse like Luna UST

1. Avoid Bank run event

Unlike UST, HYDT protocol's staking does not offer unstaking during lockup period. Instead, users receive fixed amount of their staking and interest combined per day (For example, 3 month staking plan give user 1.156% of their staked amount per day for 90 days, resulting in 104% return in 90 days=16% APY)

This system makes sure users can't unstake all of their HYDT at the same time, makes it harder to trigger bank run event.

2. Not use our own token as collateral

Even though Terraform Labs officially called their stablecoin UST as argolithmic stablecoin which dose not have collateral, the protocol is designed to treat Luna as collateral because they allow users to redeem 1 UST to 1 USD worth of Luna. This system caused Luna to be hyper inflated and made it worthless when bank run event happened, as it has unlimited supply and Luna had almost no use case other than on Anchor protocol.

In HYDT Protocol, protocol uses BNB as collateral instead of our own governance token HYGT. In this way, collateral won't be worthless because BNB has limited supply and having larger use case than HYDT protocol itself.

3. Flexible and durable soft-peg mechanism

One of the reason UST had collapsed in very short period of time is that they allow users to redeem large amount of UST for Luna in short time, which resulted in hard crash of Luna Price, and Luna price crash scared users further resulted in more UST being redeemed for Luna.

To avoid this type of death spiral, HYDT protocol limits redeemable amount in HYDT to only small potion of it's collateral, and these redeem process is processed automatically by smart contract.

For example, being 10% depeg (0.9 USD per HYDT) only triggers redeem of about 0.1% of collateral per day, 50% depeg only triggers redeem of 0.85% of collateral per day. This means even when large sell-off of HYDT happens, protocol will keep majority of collateral during crash and let the market absorb selling pressure itself until HYDT price get back to 1USD.

This makes sure there will be no chance BNB collateral dries up, always rewarding those who keep staking their HYDT even during depeg event and punishing those who panics and selling their HYDT during depeg event.