On Saturday UST token experienced a de-peg from US Dollar. As a result of such an unfortunate turn of events, LUNA now falls massively. Both LUNA and UST crashed, with latter basically losing the right to be called a stablecoin.
TerraUSD (UST) stablecoin is worth $0.35 at the time of writing. Binance and other exchanges have effectively stopped trading UST, mentioning some “network problems”.
Now, the LUNA token has been forced to bite a humble pie. Luna suffered from UST crashed and its price dropped massively – over 95% over the last five days.
In one week, LUNA has dropped from trading above $80 to its current price of $4.89 at the time of writing.
How LUNA and UST crashed
Luna Foundation Guard (LFG), the organization that ensures UST maintains its $1 peg, has been putting a lot of effort into ensuring that there are no more losses and returning the UST peg to the Dollar.
But some analysts say there is a possibility that there were no funds in the Terra project to support the UST and maintain its Dollar peg.
Something weird was going on there. Terra’s stablecoin reserve emptied its Bitcoin reserve by deploying $1.5 billion worth of BTC to support the UST and also defend the peg. The intention clearly was to add the required liquidity to the ecosystems. Assuming that LUNA and UST crashed badly, that didn’t work.
The foundation also started to loan out coins to other trading firms and also 750 million UST tokens to accumulate BTC all aimed at defending the peg.
On May 5, the foundation had a total of 167,081 BTC ($3.5 billion) when it announced that it has added 37,863 coins more.
Do Kwon, Terra funder, tweeted “Deploying more capital – Steady lads.”
Then the foundation moved 42,500 coins to different crypto exchange platforms like OKX, but since then Kwon has not said a word.
How are UST and LUNA supposed to work?
UST and LUNA work together to maintain the $1 price using game theory and blockchain-based burn and mint mechanics.
These mechanics acts as a shock absorber for UST price volatility by ensuring that traders can swap a $1 worth of UST for $1 worth of LUNA.
It’s obvious the idea wasn’t able to work as intended as both UST and LUNA massively crashed.
As of now, it looks like LUNA might still recover from shock.
Today’s Doji candlestick showed that although bulls are buying at lower levels the bears are equally defending the lower levels, therefore, the selling and buying pressure are canceling out.