Although Bitcoin seems to have stabilized near $31,000 per coin, Terra’s stablecoin continues crashing. At the time of publication, it is struggling to remain above $0.50. UST is the native stablecoin for the Terra network.
The Terra ecosystem’s native algorithmic stablecoin TerraUSD (UST) has now plunged by more than 45% in the past 24 hours. On May 11, 2022, it dropped as low as $0.2998, based on data acquired from CoinMarketCap. It is now struggling to remain above $0.50 per coin, way below its $1 peg. With regards to market value, this stablecoin has shed over $11 billion Since May 9, 2022.
Currently, UST’s market cap is just over $7 billion, which makes it the fifth-biggest stablecoin on the market, a major plunge from its third place that it had hit in April. UST is one of the two major tokens that power the Terra network ecosystem.
Instead of being backed by traditional assets like treasuries and cash, or even cryptos, Terra’s stablecoin had tried to maintain its peg using a mint-and-burn mechanism in line with LUNA, which is Terra’s native governance and staking token.
In that arrangement, the investors may always swap 1 UST for $1 of LUNA and in swapping, destroy the UST, eventually removing it from circulation. Therefore, whenever UST dropped below its $1 peg, savvy arbitragers may purchase the discounted UST and swap it for $1, in turn, nabbing a significant profit.
The purchasing pressure on UST was expected to re-peg the wavering stablecoin. But in the past week, the mechanism seems to have deteriorated.
UST’s Tough Week
Although today marks the lowest price point UST has dropped to, the stablecoin has now been battling since May 8 to recover its $1 peg. At the time, the stablecoin plunged to $0.985. The event was nevertheless adequate to incite a lot of panic in the market, pushing LUNA down 10% at the time.
But, the latest LUNA drop seems to know no floor. Coupled with its stablecoin partner, Terra’s other native token has lost a staggering 94% over the past 7 days.
LUNA is today trading at about $5.50 after seeing an all-time high of $119 over a month ago.