The Luna Foundation Guard (LFG) has been working hard to shore up its embattled UST stablecoin, which has yet again fallen from its dollar peg.
If a massive crypto market slump wasn’t enough, the collapse of the world’s third-largest stablecoin ecosystem has surely added fuel to the fire.
The Luna Foundation Guard, a Singapore-based non-profit that maintains the Terra network, has been reaching out to investors in the hopes of obtaining funding to shore up the troubled stablecoin.
LFG intends to raise more than $1 billion in order to collateralize the UST stablecoin. The move is unsurprising given that the stablecoin has decoupled from the US dollar, falling below $0.7 on two times this week.
Currently, the rate of the UST coin is at $0.3; at one point, the price was recorded below $0.23, a worrying number and a big question mark whether this stablecoin will collapse or not?
Terraform Labs founder and CEO Kwon Do has remained silent about the saga, and the investment has yet to be confirmed. At the time of writing, his most recent Twitter message was, to say the least, cryptic:
This does not seem to solve the problem, and it even brings growing anxiety to those who believe in the Terra ecosystem. An undeniable fact is that now LUNA is at $2.2. At the time of May last year, this was a very normal news, but now the game is different; after a year this is a picture of a crisis.
To understand why a de peg is possible, let’s explore the different types of stablecoins:
UST is a decentralized algorithmic stablecoin, and it is backed by an algorithm, not assets. Algorithmic stablecoins like UST are valuable because they are scalable, ideal for facilitating DeFi, decentralised, and improved capital efficiency. Unfortunately, this also creates risks, which can result in de-pegging.
The 19.5% yield on Anchor incentivized large amounts of liquidity and is currently responsible for 51.8% of UST’s circulating supply. However, Anchor’s dominance over UST is also an issue, as it has lost 57.8% of its total TVL this week. UST leaves Anchor means it swapped for other assets, which created sell pressure on UST.
Unfortunately, this is a major issue for LUNA; when UST supply reduces, LUNA is minted. As you can imagine, this is bad for the LUNA price as more tokens are now circulating.
Emotion is a rule of crypto. FUD and panic are usually stronger forces than any tangible baseline metric (at least in the short term). There are big players that made obscene amounts of money from this sell event. There are also whales that are making millions riding the arb on the way up (peg was already at 0.90 from 0.61 yesterday). This is a true war of the bulls vs bears.
Will Luna Foundation Guard save the slide of UST, and the red market now can still have a positive opportunity?
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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Harold
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