On May 10, the UST dollar hit a low of $0.6. The stablecoin was challenged due to its lack of liquidity shortly after the Luna Foundation Guards (LFG) finished building its $3 billion treasures last week.

The UST Dollar de-pegging first emerged as huge draws from Pool 53 in Anchor, then dropped from $1 to $0.98. Anchor is Terra’s largest revenue-earning protocol driving the highest demand for UST. In just a few days, the highest profitability source of UST (Anchor) lost 60% of its deposits to de-pegging.

LFG’s proactive strategy for UST Dollar

This led to a bitcoin sell-off by traders and mutual anticipation that LFG would turn to liquidate its BTC reserves to support the peg. Accordingly, on 9 May, LFG announced a proactive strategy, decentralizing the reserve strategy.

Shortly after the announcement, the disruption was resolved, but UST was unable to stabilize its $1 pin permanently. It fell to $0.9 and accelerated more pullouts leading to a drop of $0.6. Even if the LFG manages to recover the peg, a lot of damage has already been done.

Takeaways from the current UST situation

The UST stable currency is moving further and further away from a decentralized stable currency, regardless of recent efforts to preserve it. Due to network congestion from UST withdrawals, LUNA’s price has suffered a sharp drop ($13.68) and a temporary suspension. As UST returned to a downward spiral, LUNA’s value fell 66% in 24 hours.

Meanwhile, it seems that BTC reserves may not be enough to hold the peg with confidence.

UST could back up LFG’s involvement, but the long-term effects on its reputation and the trust steadily garnered from investors will take longer to materialize. The state of the UST reminds us that better frameworks need to be put in place to absorb structural risks for comparable algorithmic stable currencies.

Sunil is a serial entrepreneur and has been working in blockchain and cryptocurrency space for 2 years. Previously, he was a co-founder of Govt. of India supported startup InThinks and is currently editor-in-chief at Coingape and CEO at SquadX, a fintech startup. He has published over 100 articles on cryptocurrency and blockchain and has assisted a number of ICOs in their success. He co-designed an industry training for blockchain development and has conducted many interviews in the past. Follow him on Twitter @shamasunil8114 and contact him at sunil (at) coingape.com

The content presented may contain the author’s personal opinion and is subject to market conditions. Do your market research before investing in cryptocurrencies. The author or publication is not responsible for your personal financial loss.

This post Research Reveals UST Stablecoin And Its Types Pose Major Risks In The Future

was published first on https://coingape.com/research-reveals-ust-stablecoin-and-its-kinds-pose-great-risks-ahead/


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