Luna Nosedives Under $2, Loses 98% Of Its Value As TerraUST Struggles To Regain Its Dollar Peg

Following a day in which teetering stablecoin TerraUST (UST) bounced around $.90, it resumed its free-fall overnight to approach $0.30 before recovering partly to $.43 this morning.

However, this performance could be considered downright bullish when compared to LUNA, the token designed to maintain its $1 peg, which has now fallen below $2. LUNA is down a staggering 98% in the past five days, which has seen its market capitalization lose $25 billion this week.

Today attention will focus on whether the Luna Foundation Guard, led by founder Do Kwon, will be about to recover from this downward spiral. The Block reported yesterday that the team was in talks to obtain $1 billion in additional collateral from unnamed hedge funds and market makers. However, that has not come to fruition.

This morning, Kwon expressed support for a new community-driven plan that will mint additional LUNA in an effort to absorb the excessive UST sell-pressure. However, even if this succeeds, it will likely require LUNA’s biggest backers, which include prominent crypto shops such as Pantera, BlockTower, and Galaxy to endure additional haircuts.

“Naturally, this is at a high cost to UST and LUNA holders, but we will continue to explore various options to bring in more exogenous capital to the ecosystem & reduce supply overhang on UST,” said Kwon.

Amidst the tumult surrounding UST and LUNA, other major stablecoins such as Tether and USD Coin are maintaining their price pegs. Furthermore, one token that is surging today is MKR, the governance token underpinning the dollar-pegged stablecoin Dai, which was up as high as 40% today. However, it has given back 75% of those gains.

Dai is an algorithmic stablecoin like UST, meaning that it utilizes a smart contract system to dynamically try and maintain its price peg. However, it has some important operational differences, such as a requirement for loans used to create Dai to be overcollateralized in an effort to protect against runs.

Source: https://www.forbes.com/sites/stevenehrlich/2022/05/11/luna-nosedives-under-2-loses-98-of-its-value-as-terraust-struggles-to-regain-its-dollar-peg/