UST has dropped to $0.39 in the last 24 hours. Meanwhile, Terra (LUNA) been down at $0.02, before turning and trading at 0.05 when writing this. Today’s market is a nightmare for some, and a dream for some lucky swing traders.
This drop has caused Terra futures traders to lose about $106 million in liquidation. Despite this major drop, 58% of LUNA traders are betting on higher values. In the last 24 hours, prices fell over 95%. A record 32% was experienced in the early morning as traders factored in contagion risks to the LUNA tokens. What’s next for the Terra ecosystem, their not so stable stablecoin UST and their native coin LUNA?
Recent Price Changes
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Currently, there’s a crypto bloodbath that has seen most cryptos go down by 20%. However, for Terra’s Luna, this bloodbath has caused it to drop by 78%, while its stablecoin TerraUSD (UST) went down by more than 61%, giving it a $0.39 trading price.
The beginning of this week saw UST lose its peg, leading to a price fall to as low as $0.66 on Monday night. However, it became a little lucky to recover the price to the $0.90 level. However, in terms of recovery days, Wednesday wasn’t isn’t part of the Terras Luck, as it’s evident in this historic drop.
This drop comes despite establishing the Luna Foundation Guard (LFG) earlier in the year to keep a reserve backing for LUNA and liquidating some of its Bitcoin assets to save UST’s peg. As told in Crypto Lists, the Bitcoin liquidated assets are part of Luna’s 10 billion Bitcoin purchase goal. Today, it’s estimated by Crypto Lists that they still hold 2 Billion in BTC, which might be used a bit more – unless the newly approved solution with way higher minting rewards will help UST to peg near 1 USD again.
Possible Reasons for the Drop
Algorithmic stablecoins, including UST – would benefit from asset backing, from cryptos like Bitcoin and LUNA but also from real USD. They retain these assets without relying on a centralized third party. When the backing is interrupted, it affects the backed coins, which is the case with UST.
Part of LUNA’s drop is attributable to the mother company, Terra selling more tokens on the open market to support UST. LUNA could be traded for exactly one UST for $1 or vice versa. The additional supply led to LUNA’s massive price drop during the last 24 hours.
Anshul Dhir, the COO and EasyFi Network co-founder, raised concerns stating that investors should be cautious when investing in algorithmic stablecoins.
Part of his statement says an inherent risk related to algorithmic stablecoins. Anyone who has invested or wishes to invest in stablecoins shouldn’t blame the industry or founders of the project in question. The statement also adds that investors must first understand the risks before making investments. Anshul also added that the risks lie with the founder and those participating in the project.
With this statement, Anshul Dhir removes the blame from Terra and makes everyone involved part of the issue. The Terra foundation recently released the following statement:
1/ The prevailing peg pressure on $UST from its current supply overhang is rendering severe dilution of $LUNA.
The primary obstacle is expelling the bad debt from UST circulation at a clip fast enough for the system to restore the health of on-chain spreads.
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
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What’s the Next Recovery Move for LUNA and UST?
In response to the massive drop, the founder of LUNA token and TerraUSD (UST) stablecoins, Do Kwon, tweeted announcing a recovery plan to stabilise his projects – and it was voted in favour of increase minting with 3x by the Terra community. His motivation is far more than that, however, given that he put a bet of over 10 million dollars on the success of Terra LUNA.
In his tweet, he revealed his move is to acquire over $1.5 billion to buy more Bitcoins from investors willing to invest in his projects. They are also actively looking for new major VC firms to come in as investors, while giving some fresh thoughts to the ecosystem. Multiple measures are being taken to get back to the peg, which has diluted the value of LUNA drastically.
2/ To expedite this goal, several measures are being taken. First, the current Prop 1164 will expand the base pool size and accelerate the burn rate of UST – helping deflate on-chain spreads. https://t.co/XLDkQTH4mF
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
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