The TerraUSD (UST) stablecoin went into some pretty rough weather yesterday after the markets turned red. UST eventually lost its link to the dollar, making UST now worth less than $1. However, the situation is now largely under control.

Terra’s UST Stablecoin Drops in Value

The prevailing panic in the markets caused, among other things, a further decline in bitcoin (BTC) price. But UST also experienced problems after a number of large investors sold their UST. Moments later, the number swaps to Curve Finance as well. A small bank run followed as UST fell to $0.985. At the time of writing, the stablecoin is still trading half a cent below $1.

The situation was visible in the considerably increasing supply from LUNA. Users can convert LUNA to UST and vice versa. Yesterday the supply of LUNA increased by 924,834 tokens, the largest increase ever in a day, showing that many users got rid of the stablecoin. Luna Foundation Guard has since taken steps to further bring the situation under control:

“The LFG Council has voted to implement the following:

– Lending $750 million worth of BTC to OTC trading firms to help protect the UST link.

– Lending 750M UST to accumulate BTC as market conditions normalize.”

‘Shouldn’t be seen as an exit from bitcoin position’

Terra founder Do Kwon tweets that the move should not be seen as a way to close his bitcoin position. Terra’s reserves consist of a decent amount of bitcoins. It recently bought $1.5 billion worth of BTC. These bitcoins support the value of UST. So now it lends out $750 million of this BTC. kwon explains how it is exactly:

“LFG is not trying to close its bitcoin position*. The goal is to have this capital in the hands of a professional market maker so that the following can take place:

1) Buy UST if price is below $1
2) Buy BTC if price is greater than or equal to $1

This strengthens the liquidity around the UST link with the dollar.”

Whether it will be enough to keep the stablecoin’s value stable now remains to be seen.

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