LUNA and UST is about to collapse
LUNA tokens serve as Terra network’s reserve fund, supporting the network’s stablecoin UST. Terra keeps its peg by minting and burning LUNA, to put it another way, the stability of UST is highly dependent on the stability of LUNA.
However, UST has dropped off its peg due to a sharp drop in the price of LUNA. LUNA is now trading at $5.84, down over 80% in the last 24 hours, according to CoinCu data. UST has also dropped to $0.34 after recovering around the $0.9 level. With a market capitalization of about $2.4 billion, LUNA has dropped out of the top ten list of tokens by market capitalization. This is one of the most impressive large-cap token sell-offs we’ve witnessed this year, and it signals some serious trouble and concerns about the potential collapse of this stablecoin.
The Luna Foundation Guard (LFG) warned that UST began to slip away from its dollar peg on Sunday. To handle the problem, the organization attempted to use part of its Bitcoin holdings to support the price of UST on the market. Furthermore, LFG has also announced that it will loan $750 million in Bitcoin to over-the-counter firms to help protect the UST peg, as well as loan $750 million in UST to acquire Bitcoin as part of its stability efforts.
On May 9, a Twitter users even saw that Luna Foundation Guard had moved the remaining BTC in the wallet to the Binance exchange, thereby emptying its fund’s BTC wallet. UST’s de-pegging was even mentioned by Janet Yellen, the US Treasury Secretary, at a Senate hearing. She feels it demonstrates how stablecoins offer “financial stability risks” and require a “regulatory framework.”
Do Kwon, a Terra co-founder, also stated that a plan to recover UST’s peg would be revealed shortly. However, no plans have been disclosed as of yet till now.
Despite these supporting actions, they have so far been ineffective in helping UST in escaping the severe price decrease. We all know that stablecoin is a very important part of an ecosystem in the crypto space. If investors lose faith in the value of UST, the potential for Terra’s collapse is real.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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