10/05/2022 16:08
Runaway inflation, geopolitical uncertainties and a new lockdown in China are the mix of events that has made the stock market creak and is also destabilizing cryptocurrencies. Yesterday, bitcoin slipped below $ 30,000 for the first time since summer 2021 and in general all cryptocurrencies were involved in double-digit declines.
In the midst of this high-tension situation, the deviation from the parity of the stablecoin TerraUSD (UST) , digital currency that generally fluctuates by a few thousandths of a percentage. On the other hand, the other major stablecoins such as Tether, USD Coin e Binance USD.
TerraUSD and how stablecoins work
TerraUSD é is a stablecoin, i.e. a token pegged to the value of a more stable asset like the US dollar, in order to eliminate some of the risks associated with the accentuated volatility of classic cryptocurrencies. Stablecoins have the benefits of a digital currency – near-instant transactions, the privacy and security of a decentralized system – but without the looming fear of losing half of your net worth in minutes.
TerraUSD refers to an open-source blockchain protocol that underpins the stablecoin algoritmiche and a growing network of financial applications.
Stablecoins track the price of fiat currencies such as the US Dollar and the Euro.
Luna Foundation Guard (“LFG”) is the entity charged with holding bitcoin as part of the reserves in support of the TerraUSD stablecoin. Terra is a decentralized, open source public blockchain built to support a suite of fiat anchored algorithmic stablecoins. First, this includes TerraUSD (“UST”) the flagship stablecoin of the Terra network and the leading decentralized stablecoin in DeFi by market capitalization (currently the 10th largest crypto by market cap).
Unlike other stablecoins which are backed by fixed deposits of the fiat currency pegged or over-collateralized in another DeFi asset, the value of the Terra stablecoin family is maintained through a system of arbitrage incentives, open market operations and leverage. protocol dynamics that keep anchoring stability and scalability of its offering without centralized control or capital-inefficient projects of incumbents. This is mainly achieved by the Earth protocol design which, through its native staking, governance and reserve assets, LUNA, provides license-free arbitrage incentives and countercyclical monetary policy levers to maintain the peg during periods of both shrinking and expansive demand cycles of its stablecoins.
Double crash, what happened?
However, TerraUSD’s fundamental stability has been shaken in the past few days, most notably during a weekend stumble that some are now calling a targeted token attack.
In fact, during the weekend there was one massive surge in USD Land (UST) supply, which caused the token price to drop and thus jump anchor with the USD. And in the last 24 hours there has been a new anomalous collapse, up to -27%, with prices falling to USD 0.666831 and then rising to the USD 0.93 area (Coingecko data), still remaining well below par at 1 USD.
Sunday’s shift was likely dictated by the move of a single whale that dumped TerraUST for $ 285 million.
To maintain your stablecoin’s 1: 1 anchor to the US dollar, Luna Foundation Guard (LFG) yesterday announced the $ 1.5 billion loan of Bitcoin. The foundation plans to make Bitcoin the reserve currency for Earth’s ecosystem, as well as its primary UST stablecoin.
Since both TerraUSD and LUNA are interconnected, the drop in prices of one is reflected in the other and the LUNA token fell as much as -60% in the past 24 hours.