After growing exponentially, the UST stablecoin faced the most feared problem, a monumental outflow of capital.
Similar to what happened a couple of weeks ago with the algorithmic stablecoin Neutrino, last May 7th after a whale got rid of $285 million equivalent in UST, a massive stampede of money began.
In fact, Terraform Labs itself it was eliminating liquidity, over the weekend. Later, Terra CEO Do Kwok claimed that the $150 million they had withdrawn was intended for the implementation of the 4pool liquidity pool in the Curve protocol.
The distrust that sparked the extreme fear among investors in this currency was the fact that its price is fixed through a computer algorithm, and not by a fiat currency backing or any specific value.
Yesterday happened what seems to have been the worst so far: UST touched a low of $0.60.
The loss of the peg of the UST stablecoin triggers a wave of fear
What seemed impossible, happened, leading the Terra team to take extreme measures.
The Luna Foundation lent about 20,000 BTC and $750 million to private companies yesterday, with the aim of trying to ensure that the UST stablecoin maintained its parity with the dollar.
However, the wave of FUD was already giant, and the massive outflow of UST holders did nothing more than generate a wave of chain events.
According to Do Kwon, the goal is to buy more UST if the price is less than USD. Otherwise, BTC would be bought, if the purchase price is equal to or greater than one dollar. As a consequence, the liquidity framework around the parity of this stable currency is strengthened.
Due to the fact that the Luna Foundation had to get rid of a good part of its BTC in order to equalize the UST selling pressure, the entire crypto market got infected with fear.
This is currently the situation
Today we see on the daily chart UST vs USDT, an incredible flash crash of this stablecoin.
A strong volume of buying has been trying to regain the parity of the UST stablecoin with the US dollar.
However, the current price of $0,9 is still quite far from ideal. But, recent behavior seems to say that the worst has already happened.
The LUNA cryptocurrency, the main stabilization vehicle behind UST, was the one who suffered the most from this whole situation.
Only between yesterday and today, the price of this currency has fallen by more than 60%, with a bearish volume that has not been seen since May 2021.
A strong divergence between the price chart and the RSI, had been announcing the possibility that a scenario like the current one was about to happen. It only took a catalyst like the FUD unleashed this weekend, to eliminate much of the unhealthy previous rise.
Now we see the price finding demand in a support zone around $30. While there are no clear signs that a rally is going to start soon, it seems like a good point to wait for it.
At the moment, the team behind the UST stablecoin has not made it totally clear what comes next, nor what the measures taken have been.
However, Do Kwon recently tweeted to announce that the recovery plan will be released soon.
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