Terra (LUNA) Crypto Prices Suffer as UST Stablecoin Breaks From Its $1 Peg

The crypto market is in a rut today, with DeFi platforms falling into disrepair and investors abandoning digital money in favor of safer investments. Some currencies are being affected more than others, even Earth (MOON-USD). Crypt LUNA is suffering especially today, shaken by a problem that arose in its sister token, the stablecoin TerraUSD (UST-USD).

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Until May, Terra had been enjoying a pretty decent year, in terms of performance. It could not be saved by the volatility of the whole market in January. However, it experienced continuous and sustained growth throughout the end of the first quarter and the beginning of the second quarter. This is largely due to the unprecedented growth of TerraUSD during this period. With a market capitalization of $ 18.5 billion, stablecoin is only $ 500 million behind Earth now. It even happened Binance USD (BUSD-USD) has recently become the third most stable currency in the world.

However, it seems that the growth phase could be coming to an end. LUNA Cryptography is getting a one-two hit that is inflicting suffering on the currency today. First, the downturn that is washing away the entire market. But there are also more issues with UST that are helping to suppress land prices.

In an already bearish day, Terra could not be coming out with worse news. Over the weekend, the stable UST currency was knocked down, causing the ecosystem and its developers to overload themselves in an effort to correct the price fluctuation. Already, the crypto Earth (MOON) is suffering losses of 13%.

Earth (MOON) Crypto suffers as UST loses $ 1 Peg for second time in 2022

It is very important that a stable currency holds its peg. Slipping even a fraction of one percent can have detrimental effects on user revenue. So with the news that UST is dropping to 98 cents, the network is quickly taking action to recoup prices.

One thing that differentiates UST from other stablecoins is that it is an algorithmic stablecoin. This means that the network uses automated math to constantly adjust UST’s supply while keeping prices at $ 1. To achieve this algorithmic balance, the offer of UST and LUNA are linked. Adjusting the supply of one crypto to make it larger makes the supply of the other crypto smaller and vice versa.

This model was scrutinized earlier this year, when UST was removed from its $ 1 fixation. After a drama involving a DeFi platform called wonderland, a massive outflow of users was able to bring down the token significantly in its price. Hours passed before prices returned to normal. Since it is an algorithmic token, UST does not need underlying reservations. But in the wake of the news, critics have commented that a reservation for UST could help.

The new Bitcoin reserve helps the Luna Foundation guard respond quickly to UST issues

The Luna Foundation Guard, which oversees Earth’s development, is in a massive process Bitcoin (BTC-USD) purchase campaign to underlie the currency. In fact, the news of this shopping spree has caused land prices to reach an all-time high in early spring.

Similar to the last de-pegging, a user output from a DeFi protocol was called Anchoring protocol (ANC-USD) sent down UST prices. More withdrawals from Curve (CRV-USD) aggravated the situation, as did UST’s multimillion-dollar deposits Ethereum (ETH-USD).

With a new Bitcoin reserve at its side, it looks like the Luna Foundation Guard is quickly remedying the situation. The group is lending $ 750 million of its BTC reserve to commercial companies in an effort to preserve the UST bond. In addition, it is lending $ 750 million to UST to continue its Bitcoin buying campaign.

These efforts are proving to be effective in dealing with stable currency. From now on, the token is again above 99 cents and trades more normally. However, the crypto LUNA is still suffering its own losses. Land prices are down 13% following the news.

On the date of publication, Brenden Rearick did not occupy (either directly or indirectly) any position in the values ​​mentioned in this article. The views expressed in this article are those of the writer, subject to the InvestorPlace.com publication guidelines.

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