What UST Depeg Means for LUNA, BTC, and Crypto Market: Experts


  • After falling below $ 1 over the weekend, the UST stablecoin landed at $ 0.34 on Wednesday.
  • The plunge took place amid a bloodbath in the crypto market in which bitcoin briefly fell below $ 30,000.
  • Experts are debating whether UST can reconnect and what it means for land and the wider cryptographic ecosystem.

The recent price action of the cryptocurrency market has been such that investors see blood on the streets where they look, but the dramatic breakdown of Earth’s UST algorithmic stable currency this week has still taken the breath away of many veteran cryptocurrency observers.

After falling below your dollar over the middle of the weekend


volatility

in the crypto market, stablecoin UST has plunged 68% in the last 24 hours to $ 0.34 as of 9 a.m. Wednesday in New York, while the native LUNA land token lost 98% of its trading value at $ 0.83, according to the price of CoinGecko.

TerraUSD price 11/05/2022


CoinGecko


Price of the Terra LUNA token 11/05/2022


CoinGecko


The precipitous fall occurred when bitcoin fell below the psychologically important level of $ 30,000, causing fears of market contagion.

On Tuesday, the CEO and co-founder of Terraform Labs, Do Kwon he said on Twitter who was close to announcing a recovery plan for UST. According to The Block, Luna Foundation Guard has been in contact with crypto investors in hopes of raising $ 1 billion for the UST stablecoin to return to parity. The non-profit organization has already done so deployed $ 1.5 billion in capital to “remove market concerns around UST” and maintain the link.

The deal was still being negotiated as of Wednesday morning, though Kwon, in a tweet, unveiled a plan in hopes of restoring the connection.

The land ecosystem has caught the attention of investors because both the government token, LUNA, and the stablecoin, UST, had increased their market capitalization over the past year. The land-based Anchor Protocol has also been closely monitored to offer UST depositors on its platform a fixed interest rate of almost 20%.

The Earth ecosystem is backed by a cryptocurrency investor, including Galaxy Digital, Lightspeed Ventures, Pantera Capital, and Polychain Capital by billionaire Mike Novogratz, among others.

“The impact of this event on the wider market is very significant. We will soon find out which DeFi projects had their treasures at anchor or UST, so outstanding protocols have been produced,” said Marcus Sotiriou, an analyst at the British digital magazine. GlobalBlock asset broker said in a research note Wednesday.

Could land restore UST dollar?

As investors rush to sell their stakes in USTthe question remains whether UST could ever return from such a dramatic deviation and repeg.

Patrick Heusser, a veteran trader who is now the CEO of Crypto Finance (Brokerage) AG, believes that algorithmically stable currencies have always had the risk of suddenly disengaging.

“I think it’s very difficult for a stable currency that was previously unrelated to regaining full confidence and trading on par,” he told Insider via Telegram on Tuesday. “Tether (USDT) is one of the few that has returned, but don’t forget that USDT is not algorithmic, but supposedly fully guaranteed.”

Joseph Edwards, head of financial strategy at Solrise Group, has long sounded the alarm about UST. He told Insider in March that the rise and fall of amplitude (AMPL) and the dramatic crash of Titan were clear examples of why stable algorithmic currencies do not work.

However, the self-proclaimed UST bear does not expect the stable UST currency to drop to zero.

“I just think it won’t exist or greatly reduce its size six months later,” he told Insider in an email interview on Tuesday. “Will it be totally ripped off? Hard to say; I could see the headlines at some point forced to cut my hair, and I’d probably be happy to cut my losses and go out to $ 0.95 or $ 0.98 if I still had UST today.”

If UST manages to re-link, buying the severely discounted LUNA token would result in substantial returns. This is because stablecoin is programmed to maintain its $ 1 value through an arbitration mechanism where $ 1 must be burned on LUNA chips to mint $ 1 UST.

“However, the fundamental problems with UST will persist and it will only be a matter of time before something stablecoin has to face its fate, place UST in applications that facilitate a massive and sustained demand and / or introduce a guarantee base. as used by Frax ($ FRAX), “wrote Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors, in a research note Tuesday. “The best scenario for most investors in cryptography would probably be a ‘slow bleeding’ of UST in a market that accepts its death.”

Not everyone is ready to give up UST. Emin Gün Sirer, founder and CEO of Ava Labs, he explained in a tweet on Tuesday which remained optimistic at UST given the sturdy underlying chain and the strong team behind the stablecoin. In April, land sponsors raised $ 200 million in Avalanche (AVAX), which was developed by Ava Labs.

“I’m not in the least surprised by UST’s resistance. Remember that all stable currencies have sometimes been deactivated, including fully collateralized and fiat-backed stable currencies. Everyone with real equipment behind them has come back,” he said. “The rebound is a great opportunity for arbitration. The dynamics that give rise to a bank run run the other way around on the way back.”

What does this mean for LUNA and BTC?

Because UST is the main stable currency for the Earth’s ecosystem, its apparent instability could pose a huge threat to the entire Earth’s ecosystem and its native LUNA token.

“If you’re a builder or project in the Terra Luna system but aren’t sure if the stable payment currency is‘ really ’stable, it’s hard to find users or customers to use your platform,” said Heusser of Crypto Finance Brokerage. “So you better go and build in solana or ethereum with a stable currency fully backed as USDC.”

The “death spiral” in UST and LUNA could also pose a potential systemic risk to the crypto market as the Luna Foundation Guard, the non-profit organization behind the Earth ecosystem, has been actively selling its bitcoin reserves to raise funds and save the peg.

“Imagine if UST had reached $ 50 billion or $ 100 billion


market capitalization

and the LFG would be 10 times higher [in terms of their bitcoin holdings]then it really becomes a massive risk to the price of bitcoin in the event that the stable currency plug is broken, ”he said.

Farrell of Fundstrat does not consider the Luna Foundation Guard’s move to defend the peg to be a serious concern for bitcoin and ether prices, but the risk posed by LUNA could exacerbate the negative effects the current macro environment has on major cryptocurrencies. causing BTC and ETH to lose support. , he said.

Regardless of whether UST recovers or not, it is not optimistic about the long-term outlook for LUNA trade due to the “current macro environment inhospitable to altcoins.”





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