UST falls to $0.65: Luna’s market capitalization plummets 44%

In less than 48 hours, the USD stablecoin TerraUSD (UST) has lost its dollar peg for the second time. The market price for TerraUSD fell to as low as $0.65 on Monday, losing $0.35. The price of LUNA, its sister token, has fallen by 44% in the past 24 hours, ending at $35.

UST 1D graph coinmarketcap 1
UST 1D graph coinmarketcap 1

The UST, a so-called algorithmic stablecoin, works with LUNA to keep the price at $1 using a set of on-chain mint and burn procedures. In theory, these mechanics ensure that traders may always exchange $1 worth of UST for $1 worth of LUNA, which has a floating price and is supposed to serve as a kind of shock absorber for TerraUSD price.

LUNA price declination threatens the system of UST’s stabilizing mechanism

The price decline of LUNA puts its market value below that of TerraUSD, threatening the entire system of UST’s stabilizing mechanism because it indicates a Terra bank run may result in some users being unable to exchange $1 worth of USD for $1 worth of LUNA.

The $1 price peg was broken this weekend, with the token plummeting to $0.985 on Saturday. Sunday’s recovery wasn’t Terra’s first or largest “depeg,” but it was the first time the algorithmic stablecoin fell below $1 since starting a much-publicized campaign to expand bitcoin and avalanche reserves.

The price decline comes from heavy selling pressure on the token, likely from traders who were spooked by the news that LUNA’s market cap had fallen below TerraUSD’S.

After the Luna Foundation Guard (LFG) revealed on Sunday that $1.5 billion of its massive bitcoin reserves would be “loaned” out to professional market makers to proactively defend the TerraUSD dollar peg, today’s depeg followed suit.