Terra Blockchain's UST stablecoin is in turmoil...

After the disaster last month USDN stablecoin from the Waves blockchain, it is the turn of the UST to suffer a violent fall.

The UST is the stablecoin used in Terra blockchain. The stablecoin is pegged to the US dollar. Basically, it is still relatively equivalent to 1 dollar.

However, in the last 24 hours, the UST has lost its anchor and experienced a loss of more than 10% of its value. The native crypto of Terra blockchain also lost more than 40% in one day. A real dropout that can scare the most moody of us. At the beginning of April, the LUNA crypto reached its ATH at $120.

fall UST token anchor protocol coin market cap

A crisis situation for Terra Blockchain who has been in the spotlight in recent months. Today, withdrawals from 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 Several wallets have withdrawn significant amounts in the Terra ecosystem protocols.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 the case for the Anchor protocol. This is certainly the one that has attracted the most investors in Terra blockchain. It offers 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 Over the weekend, more than 2 billion were withdrawn.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 is below the $1 mark, then traders can exchange UST for LUNA. This reduces the supply of UST. And, there, they can resell LUNA forUSDT (for example) and take profit. These are also the crypto trading bots as Bitsgap which allow this type of operation to be carried out.

Perhaps we should review the algorithm for creating UST and LUNA. (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 declared on Twitter that the fund would receive $750 million in BTC as well as the same amount in UST. This would bring liquidity back to the ecosystem 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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