Terra Luna UST loses its peg to the dollar
In what seemed to be a bad day for the entire cryptocurrency market, things quickly became bad, maybe worse is the right word for the Terra Luna ecosystem. As its stablecoin UST de-pegged from the US dollar.
What exactly is TerraUSD (UST)?
TerraUSD (or UST) is an algorithmic stablecoin that is decentralized, scalable, interest-bearing. In particular, it is famous for its predominantly infinitely scalable monetary policy. The king of Stablecoins as it is fondly called was launched on the Terra blockchain since 2020. It was meant to bring DeFi (Decentralized Finance) to the Terra ecosystem.
The Luna UST is a combo of a mechanism that is suppose to balance each other out algorithmically. Simply put, UST is algorithmically kept at value with the help of supply and demand at play which means that instead of the token being collateralized by other crypto’s or real world dollars, the value is derived algorithmically by burning or minting LUNA.
How it went wrong for Luna UST
The TerraUSD (UST) is dynamically set up in a way that, you can redeem $1 UST for $1 of LUNA which is the Terra Blockchain native token. This ensures that the Stablecoin doesn’t lose its peg with the dollar.
As the Cryptocurrency market made a massive nose dive, LUNA’s price plummeted heavily and very quickly. Which caused its Market cap to become lower than that of UST. This meant that traders could no longer be able to redeem it’s LUNA at a 1:1 ratio. The price of UST fell to as low as $0.60 and quickly came back up to $0.91 again after efforts were made by the CEO of Terra Blockchain Do Kwon to salvage the situation. The Luna UST losing its peg with the USD isn’t new as in May 2021 there was a similar loss in it’s pegged value.
What was done to Save Luna UST?
Do Kwon said in Mar 2022 that Terra was going to add Bitcoin as a reserve asset along side Avalanche
$UST with $10B+ in $BTC reserves will open a new monetary era of the Bitcoin standard.
P2P electronic cash that is easier to spend and more attractive to hold #btc
— Do Kwon ? (@stablekwon) March 14, 2022
Deploying more capital – steady lads
— Do Kwon ? (@stablekwon) May 9, 2022
and that was exactly what they did. However that didnt seem to have helped steady the sinking ship.
3/ While buys and sells of UST are not meaningfully directional now, we felt it was valuable to have capital ready to be deployed in the current market.
As markets recover, we plan to have the loan redeemed to us in BTC, increasing the size of our total reserves.
— Do Kwon ? (@stablekwon) May 9, 2022
Opportunities With all of these
Whenever the Cryptocurrency market become so volatile, money is changing hands. Liquidations are evident left right and center. With Smart Money mopping up all the low and high hanging funds.
Traders capitalized on the discount prices of LUNA and UST to make huge gains.
LUNA is trading at $18.89, down 84% since its all-time high of $119 on the 3rd of April, 2022. The recent drop in price is one of the most significant drops we’ve seen for any crypto asset this year, and we can only hope that LUNA bottomed out already, however there are indications that if the palliative measure being put together by Do Kwon the Master of Stablecoin. Then the worse is yet to come for Luna UST.
