On Monday, May 9, 2022, the stablecoin terrausd (UST) lost its parity with the U.S. dollar and dropped to an all-time low of $0.66 per unit. The stablecoin has been one of the most topical discussions in crypto during the past 24 hours, as many have been betting on whether it will fail or recover. However, by 9:15 a.m. (ET) on Tuesday morning, the stablecoin has managed to climb back to $0.934 per unit.
UST Stablecoin plunged to $0.66 per unit, rumors spread like wildfire
Blockchain project Terra has suffered lately, as the native asset of the LUNA network lost 43.6% against the US dollar in the past 24 hours. Moreover, the stablecoin terrausd (UST) also faced intense pressure as the value of the token fell from $0.99 to a low of $0.66 per unit. On a few exchanges, the UST has dropped as low as $0.62 per unit during extreme selling periods. Just before the UST fell $0.09 from the $1 peg, Terra co-founder Do Kwon tell the audience that the team was “deploying more capital”.
During the course of Monday evening, the Luna Foundation Guard (LFG) emptied the LFG bitcoin wallet that once held approximately 70,736.37 BTC. Currently, there is zero bitcoin in the wallet as it has been drained dry. The same can be said for the LFG Gnosis safe address, as the ethereum address held $143 million on May 3. Today, the wallet holds $135.58 in ether, and a few other ERC20 tokens with small values. While LFG and Do Kwon told the public on Monday that $1.5 billion in bitcoin and UST would be lent to market makers, the current moves have been less transparent.
As the UST dipped to $0.66 per unit, a slew of theories swirled around the crypto industry. There have been complaints that the multinational hedge fund and financial services company Citadel was involved. Reports additional claim that Binance’s order books had come to a halt during the UST selloff. For a short time, Binance suspended LUNA and UST withdrawals. Additionally, there has been talk of well-known crypto funds also bailing out Terra, redirecting billions into the stablecoin ecosystem.
From a factual standpoint, Citadel does not trade stablecoins, including UST.
Reports further claim that Binance order books had paused during the UST sell-off. For a small period of time, Binance paused LUNA and UST withdrawals. Additionally, there’s been talk of well-known crypto funds bailing out Terra as well, by funneling billions back into the stablecoin’s ecosystem.
“There’s a rumor going around about Jump, Alameda, etc. providing another $2 billion to ‘bail out’ the UST,” said Blockcrypto Head of Research Larry Cermak. tweeted Monday evening. “Whether this rumor is true or not, it makes perfect sense that they spread. The bigger question here is that even if they can get it to $1 miraculously, the trust is irreversibly gone.
After UST Rebounds to $0.93, People Question Trust in Stablecoin Project, Anchor TVL Slips 43% in Single Day
Discussions of people losing faith in LUNA, UST, and Terra, in general, have been scattered across social media. “No matter how it ends, I don’t want people to call decentralized UST again,” said Hasu, the bitcoin advocate. tweeted Monday. “Even what little guarantee it has is opaque and controlled by a single party. Used to perform discretionary open market operations. It’s 10 times worse than the Fed,” Hasu added.
Investor Lyn Alden also made a statement about the Terra disaster after she predicted it could happen last month. “Terra’s multi-billion-dollar algorithmic stablecoin UST blew up today,” Alden said. “Aside from destroying the value of LUNA, they used their bitcoin reserves to try to defend the peg, kind of like a flailing emerging market using its gold reserves to defend its FX.”
During the overnight trading sessions and Tuesday morning trading sessions, the UST recovered from its losses. So far, terrausd (UST) has managed to rally to $0.934 per unit, down 6% from the $1 parity. Terra co-founder Do Kwon hasn’t tweeted since saying “Team A” was rolling out capital, even though the co-founder is widely known for championing his project. At the same time, LFG has also not informed the public since its last tweet, who said he would provide more updates.
In addition to the problems with LUNA’s and UST’s price, the decentralized finance (defi) lending protocol Anchor has shed 43.7% of its total value locked (TVL) during the past 24 hours. At the time of writing, Anchor has a TVL of around $7.22 billion and $95.08 million is Avalanche-based collateral. Anchor was once the third-largest defi protocol, and it has dropped down to the sixth position on Tuesday.
Many are wondering what will happen if the UST regains its parity of $1 with confidence in the stablecoin so shaken. Many UST owners might wait for the $0.99 area or near that range, so they can withdraw from the stable and move on. At $0.934141, the UST is closer to parity of $1, but an investment of 5,000 UST would equate to just $4,670.70 at current prices.
