Terra’s algorithmic stable coin UST plunged to a record low today, which led to more price decline for its sister coin LUNA.
At the time of writing, the dollar-pegged stablecoin, UST, had stumbled to the lowest point since its creation. According to CoinGecko, the digital asset had lost over half its value after falling as low as 33 cents. A closer look at the 7-day chart reveals that it quickly managed a recovery to around the 50 cent price mark.
UST 7-day chart | Source: CoinGecko
The Terra USD fell below 70 cents for the first time on Monday as holders frantically dumped the tokens. According to Coinbase data, the token dropped to a 62 cent low before climbing back above 90 cents on Tuesday.
LUNA also suffered a considerable backlash as it has lost more than 90% of its value in the last 24 hours. It is currently trading below $1.5, according to CoinGecko.
“Hang Tight,” Says The Terra Team
Do Kwon, the UST’s creator, took to social media to calm investors. He assured them that his team was close to announcing a recovery plan, “hang tight,” he tweeted.
UST is an “algorithmic” stablecoin created in 2018 by the Singapore-based Terraform Labs as part of the Terra blockchain project. Like other dollar-pegged crypto assets, the token was designed to track the value of USD. These assets serve as a hedge during market uncertainties.
However, unlike US Tether (USDT) and USD Coin (USDC), UST is not backed by any cash reserve. Instead, it uses a minting and burning mechanism of Terra’s stablecoin and its sister coin, LUNA, to keep its price in check. This is achieved by adjusting the supply of both tokens.
When UST’s price falls below a dollar, it is destroyed and exchanged for LUNA. This is aimed at enforcing scarcity and pushing the price back up. This idea was further complicated when Kwon purchased Bitcoin worth $3.5 billion to serve as a prop in times of crisis. The idea is that UST will be a buy-back using mammoth digital currency, although this theory is yet to be subject to test.
Consequently, Bitcoin investors are also watching UST’s performance closely. This is because market participants are scared of a possible sell-off.
Do you think this is the end of the road for Terra’s USD, or will there be a swift come-back? Let us know your thoughts in the comment section below.
Kingsley is a fintech writer with over 4 years of experience covering blockchain and cryptocurrency news. Alo first discovered Bitcoin in 2016 and has been passionate about it ever since, particularly the various ways blockchain can help Africa and the world at large. He desires to give the crypto space a more geographically balanced narrative and serve as a bridge between Africa and the rest of the world. His articles have been featured in Cointelegraph, Beincrypto, and Forkast.news, among others.
