With the rise in crypto–currency prices, there is no better time to get involved in the UST cryptocurrency market. Earlier this year, a nonprofit called the Luna Foundation Guard began purchasing $10 billion of bitcoin. This money would act as a backstop for the UST, as bitcoin is considered the reserve currency of the Terra ecosystem. Last week, the organization said it had bought $1.5 billion worth of bitcoin. As a result, it is now taking measures to defend UST stability.
One of the most controversial aspects of the $UST de-peg is the claim that the event was the result of one entity acting alone. Using on-chain evidence, Nansen’s research team has disproved this theory and argues that the UST de-peg was the result of the actions of several large investors who sought to take advantage of the destabilizing market conditions. Interestingly, the research team found that UST’s de-peg was not caused by one entity, but by the investment decisions of several well-funded entities, as well as by the reduction of UST allocations in turbulent macroeconomic and market conditions.
Despite this, UST has proven to be valuable to traders in staking and moving money from centralized to decentralized finance applications. While Clements does not call UST stable, he does conclude that it’s “unlikely” that the coin will ever recover its peg, especially after a $1.5 billion BTC sale. Moreover, depegged UST prices were already diluted and many investors would prefer to take pennies on the UST than redeem it for LUNA.
In April, the UST Wormhole balance increased slightly. However, it increased significantly from May 5 onward, concurrent with the de-peg. This increase occurred just before the UST de-peg and paralleled a decline in the value of the token. Moreover, historical transfers from Terra to Ethereum showed significant activity around the same dates, indicating large volumes were bridged during the UST de-peg.
The UST depeg was caused by a lack of concerted actors in the cryptosphere. LUNA-UST was one of the projects that made LUNA possible. The UST cross-chain was another, but it could not have survived on its own. It would have been impossible to develop a LUNA-UST exchange that could handle such a large volume of traffic. The DeFi industry is still in its infancy, and it is unclear if it will survive the depeg.
UST decouples from $1 peg
If UST crypto decouples from its peg of $1, what does that mean for other cryptocurrencies? It means that the value of UST is now dependent on the demand for Terra and LUNA network services. As users abandon UST, more coins will be printed to cover the demand. This further lowers the value of LUNA. In the short term, the UST crypto will remain below $1. However, if LUNA decouples from the $1 peg, then other cryptos will likely follow.
Several crypto assets are backed by fiat currency, which is a problem for UST. It is possible that UST will fall below $0.70 once the dollar’s value rises. In this case, investors and market makers might deploy their BTC treasury to buy UST. If the LFG decides to buy back BTC, this would result in a negative effect for LUNA.
UST decouples from arbitrage mechanism
The current UST crypto decoupling has several consequences. The first is that the decoupling process damages confidence in the entire market. If this process continues, this confidence loss will spread to traditional institutions investing in cryptocurrencies. Another result of this decoupling process is that LUNA will fall as the market maker purchases BTC with UST. This in turn will cause the UST to rise. In turn, this will allow the market maker to buy BTC with borrowed UST. This will create a vicious cycle for the UST crypto.
The UST crypto decoupling process has been a major source of volatility for the UST market. The UST foundation had launched a series of “rescue” measures to stem the selling pressure in the market. Moreover, the selling pressure was so large that it intensified the downward trend of the entire market. From May 8 to 14 alone, about 805,000 BTC was transferred to the exchange. Furthermore, a total of 212,300 BTC were transferred on May 9 alone. Moreover, 120,000 BTC were transferred daily between May 12-14.
As the UST continues to rise in value, investors are beginning to realize that it is time to sell. The UST is currently below $1, although it has recovered from its lows. Nevertheless, there is a material tail risk if UST depegs. This article will explain what you should do before the UST goes under $1. We will also discuss some potential solutions. This article is based on my personal experience with both the UST and terra.
Nansen’s researchers conducted a study to better understand why UST depegs. They studied forum threads and social media, and observed prominent transaction flows on the Curve liquidity pools. They compiled a list of wallets with significant impact on UST depegs. The research also included transactions across the Wormhole bridge. They also looked into outflows from Anchor protocol and sales on centralized exchanges.