What was the effect of unloading UST at prevailing prices?

by | Jul 6, 2022 | Market, Market News, News | 0 comments

TerraUSD (UST) is the cryptographic algorithmic stablecoin of the Terra blockchain. Since it is a stablecoin, its value is soft pegged to the US dollar. In May of 2022, the crypto coin lost its peg to the fiat currency and unfortunately crashed, resulting in the further crash of the cryptocurrency market.

TerraUSD (UST) was one of the most-watched and followed stablecoin in the cryptocurrency market. Its crash caused an unexpected shock to many investors.

UST’s price fell well below 0.1 US dollar. Not only did it lose its peg, but it also started a domino effect where the prices of other cryptocurrencies fell, eventually resulting in a market crash. Not even the largest coins of the cryptocurrency market such as Bitcoin and Ether survived. TerraUSD (UST) is currently priced at 0.030471 US dollars. It is quite understandable that the fall of UST was quite grave.

Along with UST, fell LUNA. LUNA and UST had an interdependent relationship. For every crypto coin of UST minted, one crypto token of LUNA had to be burnt through. They were burnt and minted in the 1:1 ratio, to maintain balance and stability.

Ever since the fall of TerraUSD (UST), Terraform Labs (the owner of the Terra blockchain and ecosystem) has tried to come up with foolproof plans that will help restore TerraUSD (UST) to its former price and status as an algorithmic stablecoin and repeat it to the US dollar.

A certain developer from Terraform Labs tweeted the proposal that fully collateralizing Terra USD (UST) and implementing new mechanisms would help to redeem its value along with LUNA’s value. Although the developer shared no details about how this proposal would be implemented, many people speculated it to be a great idea that could return UST to its former price, i.e., the way it used to be before the crash took place.

The same developer also seemed to suggest that the idea of Terraform Labs giving up and ending the control of the Terra ecosystem was a topic of interest that had a positive response, thus it was under consideration. The idea was presented to preserve and salvage whatever was left of the Terra Ecosystem and rebuild it in a correct and foolproof manner that won’t crash again.

The relationship between LUNA and UST was essential to keep the stablecoin (UST) pegged to the US dollar. The effect of unloading UST at prevailing prices was done to increase the supply of the LUNA tokens by a great amount, which would eventually result in the price of that token going down and falling, thus again.

One of the Terra Validators also declared that a quorum of validators took the effort to halt the entire network to avoid a ‘decimal crisis’ which had been occurring due to the extreme devaluation of LUNA.

Recent resourceful websites that report on the happenings of the market have uploaded that the number of LUNA tokens in circulation has gone up from 1.46 billion to 7 trillion.

Thus we can say that the effect of unloading UST at prevailing prices has been positive. Terra developers seem to continue this new policy. To get the Terra ecosystem to function at its full capacity, developers are pursuing the option of creating a new blockchain altogether. The implementation of this idea is the effect of unloading UST at prevailing prices. Although it is quite a while before Terra can be rebuilt again, investors are hoping that these small steps will help in the big picture.