After Yesterday’s Decline, Terra Stablecoin UST Has Made Significant Recovery As The LFG Raises An Additional $2B From Investors.
The price of the Terra stable coin (UST) continues to fluctuate seriously since losing its dollar peg over the weekend, with respite in sight.
Despite the LFG’s efforts in shoring up the currency by loaning out $1.5b in BTC and UST yesterday, the UST price remained below the dollar peg. The latest Coinmarketcap data shows that Terra’s UST currently trades at $0.9001. This price represents a significant improvement given that Coinmarketcap data of yesterday evening showed that UST was trading at $0.69.
The UST is the dollar-based stablecoin of the Terra blockchain network. While it is a stablecoin like the USDC and tether, it differs from them in terms of design.
The USDC and tether are backed by bank cash and assets, while the design of the UST is to hold a 1:1 parity with the USD through an algorithmic relationship with Terra’s governance token, LUNA. The LUNA-UST algorithmic relationship means that the minting of either LUNA or UST requires the burning of the other.
Then, arbitrage opportunities can push the UST to maintain its dollar peg. Thus, if the UST loses its dollar peg as it currently does, short-term traders can buy massive amounts of it and sell it when it reclaims its dollar peg to make some profits.
The free market restores ‘order’ automatically. However, the general downtrend in the crypto market over the past few days caused the LFG, and Terra co-founder, Do Kwon to panic. Hence, their decision to loan out $1.5B worth of BTC and UST to OTC trading firms and raise another $2B from investors, as reported here on TheCryptobasic earlier today.
The Efforts To Restore UST’s Dollar Peg
Kwon and the LFG are creating several backup options if the UST-LUNA algorithm no longer works as designed. Even though the main reason the LFG maintained UST’s reserves in BTC and other digital assets was for this kind of situation. However, this action hasn’t had desired effect yet.
Like most markets, no one can pinpoint exactly whether the general downturn in the crypto market is the sole reason for the UST losing its dollar peg or there are other steps taken by the LFG unknown to the public that is causing these issues for the stablecoin. As if the intense selling pressure on the leading digital asset wasn’t enough, the LFG’s BTC liquidations on Monday have also contributed significantly to this selling pressure.
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