Altcoin LUNA fell in price by 99.9 percent. How are they planning to save him, and is it realistic?
Terraform Labs CEO Do Kwon is ready to continue to “fight” for the normalization of his algorithmic stablecoin UST. Over the past few days, the altcoin LUNA and the stablecoin TerraUSD (UST) have suffered a crushing fall - the value of both assets has fallen to almost zero. All because of the collapse of the UST parity to $1, that is, the stablecoin simply ceased to fulfill its main function. Against this background, the project faced criticism and open hatred from investors who lost huge amounts of money. However, coin developers believe that they can be saved. Here are the details.
We have clarified the latest data: today Luna is trading at the level of 2-3 cents, and not so long ago, about a hundred dollars were given for a coin. Here is the four hour chart.
UST is almost two times behind the required level of $1. Here is his course.
We talk about what is happening and the plans of the project management to save it.
Why did UST and LUNA fall?
UST is the most popular algorithmic stablecoin at the moment. It theoretically maintains its dollar peg with an algorithm that encourages traders to “keep” the UST price in the $1 region with trades. To maintain the dollar peg, the entire system relies on traders to burn or create tokens for profit. This process occurs due to the pairing of UST with the Luna cryptocurrency.
Every time a UST token is mined, the equivalent of $1 in LUNA is burned, and vice versa. Therefore, when the price of UST falls below $1, traders are encouraged to burn the UST, or withdraw it from circulation, and receive LUNA tokens at a reduced rate. If the price of UST exceeds $1, there is an incentive for traders to burn LUNA in exchange for its equivalent in UST, which increases its supply and theoretically eventually reduces the price to the same $1. That's how it worked until recently.
On Saturday, the UST lost its peg to the US dollar, and on Monday the situation became catastrophic. As of today, the stablecoin is 46 cents off the peg, trading at 54 cents instead of $1. Many experts agreed that the root of the problem lay in the Anchor protocol, in which UST deposits dropped from $14 billion to $11.2 billion over the weekend.
Anchor Protocol is a savings and crypto lending platform built on the Terra Blockchain.
UST's heavy reliance on Anchor has previously drawn criticism from the crypto community, as Anchor's returns may well be inflated by sponsors, including Do Kwon himself. As the stablecoin UST fell, so did the price of LUNA, according to Cointelegraph . As a result, large outflows of UST from DeFi platforms led to the fall of LUNA by 99.9 percent from its historical maximum point.
It wasn’t just LUNA that suffered: the altcoin Avalanche (AVAX) also sank nearly 30 percent in price in a very short time.
According to Cointelegraph sources , the thing is that AVAX is included in the pool of assets to reinforce UST. In other words, investors are afraid of massive cryptocurrency sales by Terra representatives who will need liquidity to save their own project.
What will happen to UST?
Terraform Labs' solution is to increase the UST issue to $1,200 million. By the way, there is another interesting point: Do Kwon for some reason wrote the amount in such a strange format, and not in the form of 1.2 billion. Many felt that in this way he was trying to “smooth out” the panic.
So here's how Kwon himself explained the problem on his Twitter.
Current Situation Overview: UST is currently trading at 50 cents, a significant departure from the planned $1 peg. The Price Stabilization Mechanism absorbs UST supply – more than 10 percent of the total supply – but the cost of absorbing so many coins at the same time has stretched the blockchain exchange spread to 40 percent, and Luna’s price has plummeted. That is, the arbitration process essentially stopped.
This means that Do Kwon’s team will issue nearly four times the amount of UST to offset all blockchain fees and streamline the stablecoin peg process. In addition, the developers plan to add collateral to the coin, essentially abandoning the stabilization algorithm. Accordingly, the entire above scheme can be considered a failure. Unfortunately, the price of the experiment was a huge loss for investors.
And the losses are huge. Luna itself set a record at $119 in early April - that is, quite recently. Obviously, such a fresh hype made some investors enter the position late and not have time to get out of there.
Will it all come to fruition? Do Kwon has no doubts about his strategy: according to him, the return of LUNA to the pedestal of high-cap altcoins will be a historic event for the entire industry. However, representatives of the blockchain community do not seem to be as optimistic. They believe that the project has simply lost its reputation and fans. Therefore, even if the UST magically rises to the dollar and gains a foothold there, investors will simply be afraid to get involved with the Do Kwon product. And they are absolutely easy to understand.
We believe that the prospects for saving two tokens from Terra are simply negligible. Obviously, the market can recover and show growth, but it is unlikely that the company's reputation will be saved. Still, price collapses at times are what investors and traders remember for a lifetime. And here is just such a situation.
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