After weeks of hyping due to the TerraUSD (UST) stablecoin release, the LUNA token has been forced to bite a humble pie after the same stablecoin de-pegged from the US dollar causing its price to drop massively.
The price of LUNA, the native token of Terra has dropped by over 95% over the last five days with the bulk of the drop being registered today where it had fallen by about 86% at the time of writing.
In one week, LUNA has dropped from trading above $80 to its current price of $4.89 at the time of writing.
LUNA and the UST
Some analysts say that there is a possibility that there were no funds in the Terra project to support the UST and maintain its Dollar peg.
However, the Luna Foundation Guard (LFG), the organization that ensures UST maintains its $1 peg, has been putting a lot of effort into ensuring that there are no more losses and returning the UST peg to the Dollar.
Besides, Terra’s stablecoin reserve emptied its Bitcoin reserve by deploying $1.5 billion worth of BTC to support the UST and also defend the peg by adding the required liquidity to the ecosystems. The foundation also started to loan out coins to other trading firms and also 750 million UST tokens to accumulate BTC all aimed at defending the peg.
On May 5, the foundation had a total of 167,081 BTC ($3.5 billion) when it announced that it has added 37,863 coins more. However, the market effects did not seem to bother Do Kwon, Terra funder, he tweeted “Deploying more capital – Steady lads.”
Deploying more capital – steady lads
— Do Kwon 🌕 (@stablekwon) May 9, 2022
However, after Kwon’s tweet, the foundation moved 42,500 coins to different crypto exchange platforms like OKX, but since then Kwon has not said a word.
How UST and LUNA work
UST and LUNA work together to maintain the $1 price using game theory and blockchain-based burn and mint mechanics. These mechanics acts as a shock absorber for UST price volatility by ensuring that traders can swap a $1 worth of UST for $1 worth of LUNA.
Although there were speculations on the future of LUNA, Today’s Doji candlestick showed that although bulls are buying at lower levels the bears are equally defending the lower levels, therefore, the selling and buying pressure are canceling out.
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