The 3rd-largest stablecoin by market cap Terra USD (UST) seems to stay in a catastrophic tailspin that has seen it de-peg in the dollar and drop to as little as $.67 on May 10.
Since it’s cost has fallen, so has its own market capital together with those of Terra (LUNA) which backs a lot of the worth of UST. Adding further insult to injuries, the marketplace cap of UST has vastly surpassed those of LUNA, drawing extreme scrutiny in the crypto community.
As of times of writing, UST cost is $.78 having a market cap of $14.1 billion while LUNA has been around a freefall, collapsing to $35.07. It has caused massive liquidations on leveraged positions, shedding its market cap to $12.3 billion based on CoinGecko data.
When the market cap of LUNA is gloomier than UST, it’s possible there are insufficient funds within the Terra project to correctly back the need for the algorithmic stablecoin and keep its peg.
what is the problem if UST mcap is bigger than LUNA mcap https://t.co/24z3kPMpNv
— 찌 G 跻 じ Goblin King from the scam bots (@DegenSpartan) May 9, 2022
The Luna Foundation Guard (LFG), which manages making certain UST maintains its peg towards the dollar, has been around damage control to try and mitigate any more losses and return the stablecoin to $1.00.
Its technique of obtaining Bitcoin (BTC) to collateralize UST hasn’t yet were built with a positive impact when confronted with several factors. Cointelegraph reported that the whale started dumping $285 million price of UST beginning May 7, resulting in the stablecoin to decrease to $.98 and LUNA to decrease to some three-month low of $61.
As LUNA cost and also the UST peg itself looked unstable, the LFG deployed $1.5 billion price of BTC on May 9 as a way of adding much-needed liquidity towards the ecosystem. The LFG loaned out coins to buying and selling firms “to safeguard the UST peg” and 750 million UST tokens to amass BTC.
The LFG held about 167,081 BTC worth roughly $3.5 billion by May 5, if this announced it’d acquired yet another 37,863 coins.
Terra founder Do Kwon made an appearance unperturbed through the market effects as late as six hrs before the duration of writing, tweeting “Deploying more capital – Steady lads.” Soon after, Cointelegraph reported Tuesday the LFG moved 42,500 coins to numerous destinations, including OKX crypto exchange. There’s not since been word from Kwon.
Deploying more capital – steady lads
— Do Kwon (@stablekwon) May 9, 2022
However, the concept BTC might be a viable backing for any dollar-pegged stablecoin has been tested to the limits. In the same time frame period from May 5 to today, BTC cost has dropped about 25% from $39,874 to $30,269 based on CoinGecko data.
The LFG’s constant trying out UST has attracted the ire of advocates of decentralization like the strategy lead at Flashbots.internet Hasu, who tweeted on Tuesday that “I do not want individuals to call UST decentralized again.”
Regardless of how this ends, I’m not going individuals to call UST decentralized again. The little collateral backing it’s is intransparent and controlled with a single party. Accustomed to perform discretionary open market operations. This really is like 10x worse compared to Given.
— Hasu⚡️ (@hasufl) May 9, 2022
During the time of writing, UST was 22% lower from $1.