LUNA

LFG has deployed its BTC reserves, but $1 billion in circulating supply contraction has so far failed to restore the dollar peg as UST trades around 90 cents ...

Exceed the cap, and the spread — the amount of LUNA that one UST can be redeemed for — is designed to widen. But for some, irrespective of whether the peg ultimately recovers, it has been a catastrophic loss. It used a roughly similar burn and mint stabilization mechanism to UST’s, and the platform’s WAVES token has fallen by 80% since. The speed of the descent overwhelmed the intended arbitrage-based stabilization mechanism built into the protocol design, which has a roughly $290 million per day soft cap for redemptions at $1. As each UST is redeemed for $1 worth of LUNA, the latter’s supply expands. The net UST supply contraction amounts to roughly $1 billion already.

Terra Network's LUNA price has continued to take a beating today as the Terra Network token plummeted 65% in 24 hours. In the last hour of trading alone, ...

As the value of both spirals downward, the strategy—which incentivizes arbitrage—has fallen apart. Terra Network's LUNA price has continued to take a beating today as the Terra Network token plummeted 65% in 24 hours. After a partial recovery to $0.93, it fell back down to under $0.75.

Terra's UST stablecoin fell way off its peg, sparking an over 40% decline in LUNA -- is the party over?

However, this dramatic dip in the price of UST may shake the faith of investors in Terra for some time. Terra's Luna Foundation Guard has announced that it would loan $750 million of Bitcoin to over-the-counter firms to help protect the UST peg, as well as loan $750 million UST to buy Bitcoin in its stabilization efforts. Moving forward, there's increased uncertainty with respect to how the market will regain its trust in UST and other stablecoins amid this impressive sell-off. The stablecoin market is very important to the proper functioning of many aspects of the crypto market. However, with a rapid decline in the price of LUNA, UST has fallen off its peg. For investors who may not be aware of Terra's model as an algorithmic stablecoin, LUNA tokens act as the reserve currency supporting the network's UST token.

A popular token pegged to the dollar dramatically collapsed on Monday, causing the crypto market capitalization to lose a staggering $300 billion.

It is also fair to wonder if or when there will ever be a successful algorithmic stablecoin. Of course, decentralization is a spectrum, so perhaps there is a middle ground between purely algorithmic tokens and the decentralized model. In UST’s world, LUNA is supposed to be a stabilizing mechanism to help return the price of UST back to $1 when it deviates. LUNA saw its market capitalization drop from over $30 billion to $10 billion in the past five days and its price is down 64% over this time frame. That said, those appear to be a paragon of stability when compared to UST. Instead of being backed 1:1 by tangible assets at a bank or custodian, UST uses a complicated setup with another token, LUNA, to try and maintain its peg. The report noted how stablecoins can be subject to runs on money market funds, especially during times of stress when the assets backing these tokens can become illiquid.

UST, a so-called stablecoin that's meant to maintain a $1 peg, was trading at just 50 cents Wednesday.

"We should have had these in place previously, so let me apologize for that." Investors are now closely watching for how Luna Foundation Guard responds to prop up its ailing stablecoin. UST's price has crumbled under the pressure of a sell-off in cryptocurrencies recently, resulting in further panic in the market. The fear now is that Luna Foundation Guard dumps those bitcoins onto the market, resulting in an even bigger sell-off. It's fallen over 50% since setting an all-time high of nearly $69,000 in November. It uses a complex system of minting and burning tokens to adjust supply and stabilize prices.

Read here to know more about how Terra and its algorithmic Stablecoins work, and what events led to it losing half of its value in five days.

May 10: Terra’s founders and the Luna Foundation Guard (LFG) stepped in to control the free fall of their Stablecoins and crypto. May 9: The Luna cryptocurrency lost 60 per cent of its value and was trading at $45 on May 9. Since UST and Luna are tied together by an algorithm program as explained above, this massive selling and shorting caused the balance to be put off. They also started to short Luna crypto currency at the same time. In a normal market scenario, this should result in UST supply getting reduced and its price should climb back to $1. But things went horribly wrong and the algorithms failed to keep this ratio. Bitcoin dropped 8.4 per cent that day, and the overall crypto market cap was also down by 7.46 per cent. Luna Foundation Guard (@LFG_org) https://t.co/IKQmFhPNdE May 9, 2022 To maintain TerraUSD’s price, the Luna supply pool adds to or subtracts from TerraUSD’s total supply, depending on the situation. 6th May 2022: The crypto market has been experiencing volatility and price swings ever since the US Federal Reserve increased the interest rate, and inflation data reached market participants. This essentially means that LUNA investors’ wealth has been eroded by more than 88 per cent in five days. A crypto Stablecoin is different from a crypto coin. This is because it tracks the value of a particular asset, say dollar or gold, and derives its price from it.

TerraUSD, the controversial algorithmic stablecoin, slumped on Wednesday as crypto markets await a rescue led by primary backer Do Kwon.

On Tuesday, following an earlier tweet from Kwon that he was “close to announcing a recovery plan,” the token rallied to around 94 cents. Over the weekend, the token lost its intended peg to the US dollar, falling to about 99 cents. Luna, a coin that’s part of the peg mechanism for TerraUSD, tumbled 84% over the past 24 hours, according to CoinMarketCap.