UST losing its $1 peg this weekend wasn’t the first or the largest in Terra’s history.
this is just an example of BLACK SWAN in crypto space but wasn’t and won’t be the last one !
What is UST?
UST is a stablecoin such as usdt or usdc or busd , a so-called algorithmic stablecoin, works with LUNA to maintain a price of $1 using a set of on-chain mint and burn mechanics. In theory, these mechanics work to ensure traders can always swap $1 worth of UST for $1 worth of Luna, which has a floating price and is meant to serve as a kind of shock absorber for UST’s price.
First of all, we need to know that there are many popular protocols in the Terra ecosystem that were locked in more than $ 30 billion before yesterday. The point is that several billion dollars of locked-in capital was the Luna currency, which was used as collateral for borrowing. what does it mean ??
Well, you can borrow about 60% of the collateral and invest it elsewhere. This difference between the collateral and the loan must also remain constant, because the protocol must ensure that your loan is repaid, and if the dollar value of the collateral decreases, the protocol will automatically withdraw the collateral and sell it on the market to clear the debt. This was the maximum amount of pressure due to the collateralized Luna.
On the other hand, in the last few days, due to the decrease in the profits of Terra network and due to better competing protocols, the demand for this network decreased, which is accompanied by sharp declines in the crypto market last week (probably triggered by the downward trend of the SPX index and stocks) and caused a malicious cycle :
🔻SPX and stocks crash >>>(🔻BTC🔜 >>🔻 Crypto market 🔜>> 🔻LUNA🔜 >> 🔻UST 🔜>> 🔻BTC🔂)
Maybe one of reason of bitcoin dump was triggered because Terra Foundation moved $1.3 billion worth of BTC to save UST value. This lead the BTC panic selling and LUNA coin price crash. We will
👉This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate
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