Cryptocurrency prices: what is the correlation between UST and Luna that explains its sharp drop?


Before May 10, TerraUSD was in the top 10 most valuable cryptocurrencies with an estimated market value of over $40 billion. However, a massive stock market crash caused the value to plummet (understatement) to $500 million, a nearly 99% drop.

What is the UST?

UST is another name for TerraUSD, a cryptocurrency stablecoin. These coins are usually pegged, literally or artificially, to the US dollar. These coins are important for decentralized finance because they are a way to try and stop some of the worst volatilities in the crypto market.

One difference between TerraUSD and other stablecoins is that it is not backed by actual US dollars. Its sister coin is Luna, a normal cryptocurrency. Both are maintained by Terraform Labs. To get a piece of one, the other must be burned. Alternatively, selling one is said to cost the same as the other. This is supposed to keep the market pegged to the dollar as people can make money selling one of the coins while the other is underperforming, keeping the coins decentralized but in theory having a strong connection to the real world value.

Why have both fallen in value so much?

The Anchor Lending Protocol housed around 75% of UST’s outstanding supply. What it did was promise 20% returns to those who invested in it, essentially a crypto loan with high interest. But these returns can’t last that long. This was realized and investors started selling, upsetting the balance between UST and Luna.

The slide was so great that those who invested in Luna, the linked coin, to try to turn the market around again were either too late or reluctant. Their joint value has gone down further.

The loss of the dollar peg was crucial. If the UST slips to 99 cents, traders could profit by buying an amount of UST and trading it for luna, profiting 1 cent per token. Losing an ankle isn’t usually terminal, but it was for UST. Once the confidence that he could reach a value of $1 was gone, everyone sold.

Faith had been permanently lost in UST and Luna would pay the price. Its value plummeted from $85 to $0.04 within a few days. At the time of publication, the coin is worth less than a penny. Over $15 Billion in Crypto Value Lost by Luna and UST Collapse. It is no longer possible to trade on the terra blockchain, making transactions impossible.


About Author

Comments are closed.