Brazilian cryptocurrency trading platform will reimburse investors harmed by Terra’s collapse (LUNA)

The customers of the Brazilian cryptocurrencies trading platform Nox Bitcoin who had investments in UST, Terra’s algorithmic stablecoin (LUNA), and were harmed by the network collapse will be reimbursed by the company, according to a report by Exame.

The CEO and co-founder of Nox Bitcoin, João Paulo Oliveira, explained that the company will disburse BRL 620,000 to proportionally reimburse the company’s customers who maintained their investments in UST on the platform during the currency devaluation, so that they fully recover the amount initially invested:

“While the collapse of UST and the Terra network was a risk external to Nox, in solidarity with customers, we will exceptionally cover the loss of currency devaluation. That is, if the client had 1 UST before the collapse, and today the UST is worth $0.10, Nox will deposit 0.90 USDT as compensation. Thus, investors will receive the proportional amount invested in the stablecoin, in USDT, which can be easily traded in the app and exchanged for any of the available options.”

Created to maintain a 1:1 parity with the dollar, the UST even dropped to US$0.10 last week during the sequence of events that destroyed Terra’s ecosystem.

Together, UST and LUNA, the protocol’s native token used as a counterweight to support the indexing of the stablecoin to the dollar, had more than $40 billion in market capitalization as of the first weekend in May.

On May 8, the UST lost parity with the dollar after an investor dumped $285 million worth of UST on the market. Despite the efforts of the Luna Foundation Guard (LFG), parity did not resume, triggering a rush by investors to get rid of their positions, exchanging the asset for LUNA at a discount.

The mechanism created by Terra to maintain the UST indexed to the dollar provides for the possibility of exchanging it for LUNA at the rate of 1 UST for 1 US$ in LUNA, regardless of the value of both on the spot market. In theory, the arbitrage opportunity would guarantee the maintenance of the UST’s parity with the dollar, but in the face of an extreme event, the mechanism failed.

While LUNA practically went to zero, losing 100% of its value in less than a week, UST is down 92% from its target price and is currently trading at $0.08, according to data from CoinMarketCap.

Nox Bitcoin

Nox Bitcoin is a platform that offers passive income generation instruments to its clients, acting as a kind of intermediary for investors who wish to use decentralized finance instruments (DeFi), but they don’t have the experience or time to dedicate themselves to it.

In the case of UST, once the tokens were acquired by Nox Bitcoin customers, the stablecoin was placed in staking automatically — through a function offered by the platform called “Auto Stake”.

In this case, Nox acted as an intermediary between the users of the platform and the Anchor Protocol (ANC) – a loan and savings protocolfor the Terra ecosystem, which offered annual yields of approximately 20% per annum for deposits in UST – generating an artificial demand for the currency that ended up contributing to the collapse of the stablecoin and the LUNA, as warned some analysts ahead of last week’s dramatic events.

To its customers, Nox Bitcoin offered 15% annual fixed income. Despite proposals to recreate Terra’s network from a hard fork and compensating users harmed by the devaluation of assets with a new token, Nox Bitcoin decided to assume the losses of its customers who kept their investments in the UST during the currency collapse. The “Auto Stake” option has also been removed from the platform.

As Cointelegraph Brasil recently reported, an investor who says he lost $2.3 million to the UST collapse tried to break into Do Kwon’s house – CEO and founder of Terraform Labs.