LUNA triggered the huge fall in crypto price, how do we protect our assets?
On May 12, the crypto market staged a superstorm! With the LUNA token, which was once well known by crypto traders, the price plummeted by more than 99%. The latest price of this cryptocurrency, which was as high as $119.5, was less than 3 cents, and the wealth of tens of billions of dollars was almost zero. At the same time, dozens of cryptocurrencies with only trading volume fell by 90% or more. Mainstream cryptocurrencies such as Bitcoin and Ethereum also plummeted, falling by as much as 10% and more than 20% at one point.
According to the Bloomberg Billionaires Index, Coinbase founder Brian Armstrong’s wealth has evaporated by about 83% to $2.3 billion. The personal wealth of Binance CEO Changpeng Zhao has shrunk from $96 billion to $11.6 billion, evaporation of nearly 90%. Since Tesla has previously announced that it has purchased bitcoin at a cost of about $32,000, if the company still holds the currency, it may lose close to $200 million.
It is worth mentioning that May 12 can be regarded as a “Black Thursday”. Except for cryptocurrencies, almost all commodities are sold off. So, what will be the impact on A shares?
The Holocaust Day Of Crypto Space
On May 12, the price of the LUNA token continued to plummet from around $6. The lowest price was less than 3 cents, only $0.0255, a drop of 99.37%. This decline can be completely described as “blood collapse”.
According to PANews on May 13, Binance CEO Changpeng Zhao tweeted that Binance decided to suspend LUNA and UST transactions because of a design flaw in the Terra protocol, a large number of new LUNAs were minted, and validators had suspended the entire network, resulting in Deposits or withdrawals cannot be made on any exchanges. Some users, unaware that there is a large amount of newly minted LUNA outside the exchange, started buying LUNA again, unaware that once deposits are allowed, the price may plummet further, and Binance suspend trading due to these significant risks. Binance asked the Terra team to restore the network, burn additional minted LUNA, and restore the UST peg. So far, there has been no positive response from the Terra team.
This huge storm happening in the crypto space should lead us to further thinking, how could people protect their assets in the first place?
The real point to keeping traders’ assets safe is not about where or how to deposit the assets, more important is about discovering the risk before holding the asset.
Discovering The Risk With Audit Report
Before purchasing or holding any crypto tokens, the most important thing is to go through the audit report of the project. A high-quality audit report is not only slowing investors/teams of the potential risk that could cause investor loss in assets, but also expose the malicious design in the business logic like the inappropriate design of the mint function, owner permissions, and white lists, etc.
The above graph shows an inappropriate design when a developer tried to add the white list to avoid the transaction fee but resulted in extra cost for general traders. The usual audit agency will not consider this as a bug in the code, but when the code runs in the production environment, it will cause the traders to lose their assets.
The mint function is also a common risk that could cause the token to decrease in price like LUNA this time. A good design of mint function in the code should be restricted in special conditions, which will not cause abused use of the owner like permission.
Reading through a good audit report provided by Auth Lab and other good audit agencies could help investors to avoid these kinds of risks before spending their money on it.