De-pegged UST sends LUNA tumbling: Token price down almost 95% in the last 24 hours

• LUNA has seen an extended downturn as investors rush to sell off
• The token has lost more than 90% on the day, sinking below $2.00

Crypto markets are seeing the worst of volatility caused by their correlation with stock markets, which are, on the other hand reacting to the US Federal Reserve’s aggressive monetary policy against inflation. However, some are feeling the pinch more than others, and the Terra ecosystem is one such network as it is barely holding on for survival in this bear market.

Terra’s LUNA token has seen a large-scale sell-offs as holders rush to cut their losses and dump the asset. This comes after the LUNA/USD pair plunged to single-digit figures – a month after hitting as high as $120 in early April. 

CoinMarketCap data shows that LUNA is trading below at $2.00, meaning it has lost as much as 95%of its value in the last seven days. This catastrophic fall remains to be the talk of the town with experts vouching for proper regulation.

This collapse of one most promising crypto tokens is a learning point that the crypto asset class is still not quite there yet notwithstanding its fast-growing popularity.

UST stablecoin hasn’t been so stable

Terra’s dollar-pegged algorithmic stablecoin UST has been the source of the perils that have haunted LUNA due to the latter’s role in maintaining the stablecoin’s price consistent with the dollar. 

The rush to save UST came with the Luna Foundation Guard deploying $1.5 billion (0.75 billion in UST and 0.75 billion in BTC) to ease market concerns around the stablecoin and restore the peg. However, the additions haven’t yet done much to restore normality. 

UST has taken a blow of similar weight, having lost as much as 50% in the last 24 hours. TerraUSD was last spotted hovering around $0.44. 

Consumer protection concerns 

With all the chaos, investors have expressed concerns as the backing of UST by crypto assets, including Bitcoin and AVAX, has not gone down well in supporting the stablecoin. As long as UST crashes, it’s evident that LUNA will suffer, too, reigning away from its preferred price point. 

Regulators will likely feed on the LUNA and UST capitulations to push the so-right need to protect the investor. Secretary of Treasury Janet Yellen used the case of Terra’s breakdown in a Tuesday hearing to argue why stablecoins must be regulated.

Recovery plan

Terraform Lab chief Do Kwon today took to Twitter to provide an update on the fiasco following a 15-hour disappearance after promising the community of a remedial play. Kwon shared Terra’s recovery strategy which focuses on taking up the stablecoin supply moving out of the market.

“We endorse the community proposal 1164 to Increase basepool from 50M to 100M SDR *) Decrease PoolRecoveryBlock from 36 to 18 This will increase minting capacity from $293M to ~$1200M. This should allow the system to absorb the UST more quickly […] As we begin to rebuild UST, we will adjust its mechanism to be collateralised.“

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