In the morning for 1 UST was given 29 cents. But during the night of May 11, UST broke through $0.74, and then, in a wave of panic, went to a peak.
CHARLES HOSKINSON LUNA PROFESSIONAL
The LFG team announced that $1.5 billion of its reserves would be lent to professional market makers to protect the UST dollar peg.įor a day, the team seemed to be able to bring UST back to its previous value, and the stablecoin traded at $0.91 for 12 hours.
The usual arbitrage mechanism stopped working and the developers had to step in. The price of Luna fell by more than half to $24.
This was the catalyst for the decline in demand to burn the LUNA coin to mint new USTs. On May 9 and 10, funds continued to flow out of the Anchor protocol, and retail traders began exchanging UST for other stablecoins.
Due to the arbitrage possibilities, the price remained stable. dollar.Ī similar procedure took place when the UST value exceeded $1. This was the mechanics of maintaining the UST peg to the U.S. With arbitrage capabilities, when the price of one UST deviated from one dollar down to, for example, 0.99, arbitrageurs could profit in the following way: they could buy 1 UST in the market for $0.99 and be guaranteed to exchange 1 UST for a $1 LUNA coin (if LUNA was worth $100, the arbitrageur would receive 0.01 LUNA when exchanged), then sell LUNA in the market, making a profit of 1 cent for the entire transaction. The basis for keeping its value within a narrow price range was the ‘mint-and-burn’ mechanism of the Terra LUNA blockchain's native coin to produce new USTs and vice versa. Unlike centralized stablecoins like USDC or USDT, which are backed by liquid assets, and fiat currency, UST was not backed by such assets. A Transparent Yet Experimental Peg Mechanism Chief among them was UST, a stablecoin pegged to the U.S. There are 23 stablecoins in the Terra network, including those pegged to the Swiss franc, the Canadian dollar, the Chinese yuan, and even the Mongolian tugrik. This project was born with the support of Terra Alliance - 15 large Asian e-commerce companies, which together serve 45 million customers. Terra blockchain works on Delegated Proof-of-Stake (DPoS) consensus, where the creation of a new block in the chain is equally likely to be given to stacking pools according to the number of blocked funds in the pool. What made Terra special was its particular vision of mass adoption of cryptocurrencies by creating digital assets that are stable in price to the world's major fiat currencies. Terra was created in 2018 by Daniel Shin and Do Kwon. So what happened and what's next for investors, the project, and the crypto space as a whole? Continue reading to get the latest. The ‘depeg’ triggered a reaction that ultimately led not only to the collapse of the UST and Terra (LUNA) cryptocurrencies, but also contributed to Bitcoin and the entire crypto space facing a serious downturn from which it has yet to fully recover. Luna Foundation Guard, the second largest known Bitcoin holder, liquidated almost all of its reserves by billions last week in a failed attempt to protect the Terra UST peg to the US dollar. Terra (LUNA) collapsed by more than 99% in May 2022, causing its market capitalization to shrink by more than $40 billion. While the situation is still ongoing, the crypto community is discussing a number of conspiracy theories, suggesting what may have led to the collapse of a crypto empire. Mentions of a possible crypto winter in May 2022, flooded social media amid the latest downfall. Do you recall that harsh crypto winter of 2018 that didn’t just refer to the winter months? These memories raise fears that the same thing will happen again after two major cryptocurrencies, TerraUSD and LUNA, collapsed sharply over the past week.
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