After last month's disaster involving the Waves blockchain's USDN stablecoin , it is now UST's turn to suffer a violent fall.
UST is the stablecoin used on the Terra blockchain . The stablecoin is pegged to the US dollar. Roughly speaking, it is always roughly equivalent to 1 dollar.
However, in the last 24 hours, UST has lost its footing and experienced a drop of over 10% in value. Terra blockchain's native cryptocurrency also lost over 40% in a single day. This dramatic decline could be alarming for even the most volatile among us. At the beginning of April, LUNA reached its all-time high of $120.
A crisis situation for Terra Blockchain, which has been in the spotlight for the past few months. Today, withdrawals of Luna token and UST are temporarily suspended on Binance …
Context
As we write these lines, we briefly remind you that the market is bearish. The price of BTC reached a bottom at $33,000. Some traders think that it will touch the low point of 30,000 in the coming days... This is the lowest since January 2021. Thus, the fall of the UST is part of a financial context where the bears hold the ropes. Since the start of the year, altcoins have not been spared from the downward pressure on the markets. This last week has been particularly rough for cryptocurrencies.
The crypto market thus follows the falling stock market. Concerns about global central banks facing high inflation are spilling over into markets. A weakened growth outlook, as well as risky geopolitical considerations, contribute to the current context.
Thus, the LUNA token and the UST are part of a difficult context.
The Anchor Protocol
The UST has lost its anchor to the dollar and there could be several explanations for this. On the one hand, we noted during the weekend which preceded the fall, significant withdrawals. Several wallets have withdrawn significant amounts in the Terra ecosystem protocols.
This was particularly true for the Anchor protocol . It was certainly the one that attracted the most investors to the Terra blockchain. It offered returns of up to 19% APR. This weekend, many depositors withdrew their funds.
As of Friday evening, deposits reached $14 billion. Note that the total market capitalization of UST is $18 billion. Over the weekend, more than 2 billion were withdrawn.
It is not only on the Anchor protocol that we have observed such withdrawals. This has also happened on a smaller scale on other protocols. The capital flight was dramatic for the UST.
An expected upgrade
Some analysts believe that LUNA's underperformance is also explained by its link with UST. By practicing arbitrage, traders want to sell LUNA for UST if it exceeds $1. They could thus sell UST against USD to pocket the difference earned.
Conversely, if UST falls below $1, traders can exchange UST for LUNA. This reduces the UST supply. They can then sell LUNA back to USDT ( for example) and profit. Crypto trading bots like Bitsgap also facilitate this type of transaction.
The algorithm for creating UST and LUNA tokens might need to be reviewed. (You can learn more about this mechanism by reading the article: Understanding Terra Blockchain and its ecosystem ?)
It is perhaps therefore the brilliant mechanism of the creation of the LUNA and the UST which is perhaps lacking. Some blame the users of the Anchor protocol who wanted to be too greedy... Some think that this will give a new dimension to Luna. It could be a nice turning point for this blockchain to correct certain elements…
Do Kwon , the founder of Terra Labs, stated on Twitter that the fund would receive $750 million in BTC and the same amount in UST . This would inject liquidity back into the ecosystem's pools.
To see if this will be enough...
Note: No financial advice is given in this or any other article on zonebitcoin. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
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