$UST token, Terra ecosystem stablecoin, has struggled to maintain parity with the dollar.
The UST market has been volatile today, as traders scramble to adjust their portfolios in the face of macroeconomic uncertainty. The price of UST hit a low of $0.9857 on Binance against USDT, before recovering slightly to $0.995 at the time of writing. This trading pair is the most voluminous for UST, with $1.36 billion in volume reported in the past 24 hours.
As of now, it looks like UST is holding a $1 parity amid the macro turmoil.
In a tweet, user Route2Fi summarized the situation as follows:
- “Looks like this is what happened:
- -Massive $UST sell-off on Curve
- -Rumors spreading quickly on Twitter
- -Leads to a $2B withdrawal of $UST on Anchor
- -Price of $LUNA tanks
- – $UST depeg to 0.987 (we think)
- -Peg straight up to 0.995 after Do Kwon tweet”
Another tweet showed a huge sale of $UST for $USDC in a single trade of $84 million:
The trader paid nearly $34,000 in fees to the liquidity pool.
What is $UST
UST is an algorithmic stablecoin, meaning that it relies on market incentives to maintain its peg. In addition to a burn mechanism involving the LUNA token, which is used as part of Terra’s governance process, UST is also backed by an ever-increasing reserve of digital assets like bitcoin that can be used to defend its market parity with the dollar. It’s unclear at this time whether or not these reserves will be sufficient to restore UST to $1 parity following this recent market event.
On Twitter, Do Kwon, co-founder of Terraform Labs, said, “I’m awake – it’s been an entertaining morning.” Following Kwon’s post, the stock market started to show signs of recovery. The pursuit of parity with the dollar looks to have remained a pipe dream. At the time of publication, UST was trading at $0.9939 on the cryptocurrency exchange Binance.
It’s unclear at this time precisely why the market event took place. Some users have been speculating that it was caused by a false peg from LUNA (a stablecoin), which has recently seen its price fall significantly and may have contributed to a lack of confidence in UST’s ability to stay close to $1.
According to CoinGecko statistics, LUNA is now trading at $61.10, representing a decline of about 16 percent in the last 24 hours.
UST has fallen below the dollar parity previously; in May 2021, the cryptocurrency experienced “severe volatility” and briefly dipped as low as $0.96 before regaining its footing and returning to parity.
The Pool Wars
One of the theories circulating among users is that it was a coordinated attack against the new stablecoin pool at Curve.finance, 4pool.
This Terra initiative is an attempt to create a pool of 4 stable coins that will unseat the 3pool fund, one of the ones with the most TVL. According this theory, the attack would have the objective of weakening the new pool.
Terra’s official version maintains that this is a normal and expected depeg in a stable algorithmic currency, in a narrative that provides peace of mind to its users.
It is true that $UST has already gone through similar situations in the past, although some analysts maintain that there are different reasons for which the take-off of the stable coin value of $UST 1 = $1 can occur, and that a run like the ones that occurred previously is not the same as this situation that affects the value of $LUNA, the coin that maintains the algorithmic value with $UST.
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