Terra USD (UST), the third-largest stablecoin by market cap, appears to have de-pegged from the dollar and fell as low as $0.67 on May 10.
The market capitalization of UST, as well as Terra (LUNA), which backs the majority of its worth, has decreased as its price has dropped. UST’s market cap has eclipsed that of LUNA, prompting doubt about the pegging mechanism of UST from the cryptocurrency world.
UST is currently trading at $0.78 with a market capitalization of $14.1 billion, while LUNA has been in free fall, plunging to $35.07.
According to CoinGecko data, this has resulted in large liquidations on leveraged positions, lowering the market cap to $12.3 billion.
If LUNA’s market cap is smaller than UST, it’s probable that the Terra project has sufficient cash to adequately back the algorithmic stablecoin’s value and keep its peg.
The Luna Foundation Guard (LFG), which is in charge of ensuring that UST maintains its peg to the dollar, has been working to limit additional losses and restore the stablecoin’s value to $1.00.
In the face of various challenges, their plan of acquiring Bitcoin (BTC) to collateralize UST has yet to bear fruit. A whale began dumping $285 million worth of UST on May 7, according to reports, leading the stablecoin to slump to $0.98 and LUNA to collapse to a three-month low of $61.
LFG acquires $1.5 billion worth of BTC
The LFG deployed $1.5 billion worth of BTC on May 9 as a means of infusing much-needed liquidity to the ecosystem as the LUNA pricing and the UST peg itself looked shaky. The LFG provided trading firms with coins “to protect the UST peg” and 750 million UST tokens to accumulate BTC.
On May 5, the LFG said it had acquired an additional 37,863 BTC for a total of 167,081 BTC worth around $3.5 billion.
As recently as six hours before the time of writing, Terra founder Do Kwon sounded unconcerned about market impacts, tweeting, “Deploying more funds – Steady fellas.”
The LFG shifted 42,500 coins to other destinations, including the OKX crypto exchange, shortly after. Kwon has not been heard from since.
The idea that BTC may be a suitable basis for a dollar-pegged stablecoin, on the other hand, is being put to the test. According to CoinGecko data, the price of bitcoin has plummeted nearly 25% from $39,874 to $30,269 between May 5 and today.
The LFG’s frequent tweaking of UST has enraged decentralization advocates like Hasu, the strategy lead of Flashbots.net, who tweeted on Tuesday, “I don’t want anyone to call UST decentralized again.”
UST was down 22 percent from $1 at the time of writing.
