Security team

Beosin Security Team: What’s the impact on Web3 after LUNA crash and DeFi ‘leak’

After a continuous fall, the price of the cryptocurrency LUNA fell from $119.5 on April 5 to near zero (and still oscillating lower), from 119.5 all the way down, the “ moon goddess” finally descended from the altar.

While everyone is worried about the LUNA crash, Vitalik, the founder of Etherpad, yesterday published an article titled “Decentralized Society: In Search of the Soul of Web3” in collaboration with E. Glen Weyl, Principal Investigator at Microsoft Research, and Puja Ohlhaver, Researcher at Flashbots.

The paper notes that today’s Web3 revolves around the expression of transferable financialized assets, but many basic economic activities – such as unsecured lending and building personal brands – rely on enduring relationships. and not transferable. Thus, the article discusses how “soul-bound” non-transferable tokens (SBT), which represent “soul” pledges, referrals, and affiliations, encode trust networks in the real economy. At the same time, SBTs support applications such as community wallet recovery, witch-resistant governance, and new marketplaces with decomposable and shared entitlements.

While everyone is wondering if LUNA will hit a new low, maybe we can reflect on the impact this LUNA-related cryptocurrency crash will have on Web3.0?

LUNA in a death spiral?

Terra is an algorithmic stablecoin platform that runs on proof-of-stake (PoS), the underlying proof-of-stake blockchain built using Tendermint, and LUNA is the platform’s token of Terra for the issuance of stable coins (TerraSDR), price stabilization and network governance. . Users can use LUNA tokens to trade TerraSDR stablecoins and vice versa. In this way, the price stability of stablecoins is guaranteed.

LUNA is the mining coin of the Terra DPoS blockchain and Terra is powered by LUNA. Thus, miners provide stability and security. On the exchange, the protocol offers stable mining rewards in all economic conditions thanks to transaction fees and minting taxes.

According to its working mechanism, when the market demand for UST increases and the price is above $1, users can send $1 of LUNA to the system (LUNA is burned) in exchange for 1 UST (UST is minted). Conversely, when the demand for UST decreases and the price falls below $1, users can send UST (UST burned) to the system in exchange for $1 LUNA (LUNA minted), thereby reducing the supply of UST in the market and restoring the anchor relationship between UST. and dollars.

On May 10, the native algorithmic stablecoin of the Terra ecosystem, UST, experienced a severe unpegged event due to the capital roundup and debt crisis, and LUNA began to continue falling.

TerraUSD (UST), the algorithmic stablecoin of the Terra ecosystem, fell to $0.01 on May 13.

In a paraphrased May 11 post, the author wrote, “Veteran DeFi players should be aware that the impact of this UST de-anchoring may not stop at the Terra ecosystem, much like the bankruptcy of Lehman Brothers, the crash of the LUNA ecosystem could reverberate all over the crypto market.

And today, the answer has emerged.

LUNA crashed, DeFi leak

The DeFi industry has seen explosive growth in value over the past two years, and now DeFi is also experiencing a crisis caused by the LUNA crash.

According to DefiLlama data from May 13, the current DeFi blockage on the Terra chain has fallen to nearly $800 million, down 79.29% in the last 24 hours. This compares to April 2, when DefiLlama data showed a $33.66 billion DeFi blockage on Terra’s on-chain.

The vision of DeFi is to map the real financial system into the digital world, enabling direct transactions between ordinary users through smart contract technology, enabling various functions of traditional financial institutions, such as derivatives, lending, trading , wealth management, asset management, etc.

DeFi is widely worried about the market: when the price of coins drops rapidly, it has the potential to create a negative feedback spiral effect on the system.

In a securities report, researchers noted that the combinatorial and converging nature of different project contracts within DeFi leads to complex intertwining and correlation between coins, and that a drop in coin prices will certainly lead to a faster and broader risk transmission than in traditional financial markets. markets.

What is clear is that common collateral and common LP transactions are critical to the price performance of assets and project tokens for the health of the DeFi ecosystem; a rapidly falling price scenario creates a severe test for the DeFi ecosystem, and the likelihood of a seemingly deadly spiral occurring is not low; especially in light of the recent fall in major token asset prices, the DeFi ecosystem faces a bigger test than traditional financial markets.

The DeFi boom is just the start of massive Web3 innovation, and when DeFi is affected, it will also affect Web3 development.

How will the LUNA crash affect Web3?

Web3 had become one of the hottest tech terms in the tech world in 2022.

The Internet in the process of evolution, often accompanied by a full range of storage, network, software updates, from the Web1.0 era to the Web2.0 era, Internet technology more mature , the line state iteration, while the Web3.0 era is presented by 5G , VR, AR, blockchain, cloud computing, chip, edge computing and a number of technologies full integration of the situation .

Web 3.0 is not only the iteration of past technologies, but also the integration of many technologies. Blockchain technology will become the core technology of the Web 3.0 era: Web 3.0 technology architecture is divided into core layer technology, platform layer technology and interaction layer technology. Compared with the era of Web 2.0, Web 3.0 involves more subdivision technology categories and wider range, and blockchain technology becomes the underlying core technology of Web 3.0 due to its decentralized features.

It is undeniable that the LUNA crash and the DeFi “leak” have also had an impact on the development of Web3.

This incident is sure to affect the mindset of Web3 practitioners in the near term, as Spartan Group Partner Jason Choi tweeted.

Dragonfly Capital partner Haseeb Qureshi tweeted 4 lessons on how to lose big money.

Prevent unsafe projects and the need for security audits

Is the LUNA debacle over, maybe not yet. When we talk about blockchain projects, there are more things that should be avoided.

For example, if the project is involved in a Ponzi scheme, if the project contract code is safe, and if the project party should pay attention to the abnormal situation of funds in time. Beosin EagleEye enables project parties and users to discover risky transactions in time, so they can take action quickly. For example, immediately suspend the relevant services, or inform the user to cancel the authorization, etc., to avoid greater losses later. In addition, the project security audit remains important.

When LUNA keeps falling, DeFi experiments run away, NFT starts shaking, Dao tries to find ways to save, when the unknown, anxiety and fear intertwine, technology development is our main goal to pursue, and the Web3 blockchain world, I believe, will still be new and strong one day.

About Beosin

Beosin is one of the world’s leading blockchain security brands co-founded by several professors from world-renowned universities. The team is made up of more than 100 security experts, including more than 40 doctoral students and postdocs. Core team members have accumulated over 20 years of experience in formal verification technologies, cybersecurity, artificial intelligence and big data mining technology.

The Beosin product series includes smart contract audit service, blockchain platform audit service, smart contract detection product, and “Eagle Eye” product. Through security audits of over 2,000 smart contracts and over 50 public blockchains globally, Beosin has successfully protected nearly $10 billion in assets and been fully recognized by global partners.


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