UST Drops, Could Jeopardize Funding Algorithm

TerraUSD (UST) is without its dollar peg for the second time in only three days, CoinDesk reported Monday (May 9).

It fell as low as $0.9009 on Monday, per estimates from CoinMarketCap.

UST is an “algorithmic” stablecoin that works with sister token Luna in order to get a price of $1 using on-chain mint and burn mechanics, which makes it so traders can always trade $1 of UST for $1 of Luna, per the report. Luna has a floating price, and is meant to be a “shock absorber” for the price of UST.

The UST has “depegged,” and the price of Luna has dropped 30% to $46 in the last 24 hours. The report noted that Luna’s price drop makes its market cap is less than UST’s, which could throw off the way it all works, making it so a Terra bank run could make it so some users can’t redeem UST for Luna.

The Luna Foundation Guard (LFG) also said recently that $1.5 billion of its bitcoin reserves would be loaned out so the peg could be proactively defended.

Monday’s events were reportedly “the biggest stress test” the system has had to date, according to José Maria Macedo, a partner with Delphi Digital as well as an LFG council member working on the group’s reserves.

However, he also said the UST-Luna market cap flip isn’t a big deal because of LFG’s reserves.

PYMNTS wrote in March that Do Kwon, the co-founder and CEO behind the Terra blockchain, confirmed it’d bought over $1 billion in bitcoin since the end of January.

See also: Terra Buys $135M in Bitcoin for UST Stablecoin Reserve

He said the bitcoin address used by the LFG was used to buy the crypto.

Kwon also said around that time that the UST stablecoin would see backing by a reserve of bitcoin. On March 22, he said he had $3 billion in funds that would go towards buying assets to back the stablecoin.


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