UST, which is known to be linked to 1 dollar and the third largest stable currency in the market is experiencing a slump with its sister coin Luna. Even bitcoin, the leading cryptocurrency, fell behind the key integer threshold of 30000 dollars twice this week.
Many analysts unanimously pointed out that under multiple pressures of high inflation and the radical “recovery” policy by the Federal Reserve or economic stall, investors are flocking out of risky assets, and a crypto winter is approaching.
On Wednesday, May 11, according to the statistics of CoinDesk, a mainstream cryptocurrency trading platform, the price of bitcoin fell to 29100 dollars, which was the second time in a week after Monday to be lower than 30000 dollars, and the lowest since December 2020, and its market value on Monday was the lowest since July last year.
Ethereum, the coin with the second largest market value, once fell 8% to the integer of 2100 dollars. At midday trading in US stocks, bitcoin maintained a 1% decline in 24 hours, fluctuating around the line of 31000 dollars, and Ethereum fell more than 4% and barely returned to above 2200 dollars.
In addition to the fact that the growth of CPI consumer inflation higher than expected in the United States in April has accelerated investors’ flight from cryptocurrency, a risky assets with increasingly high positive correlation with US stocks, the slump of mainstream digital currencies, especially bitcoin, also has a close relationship with the loss of the stable currency UST with 1 US dollar.
UST, also known as TerraUSD, is an “algorithmic stable currency” launched by Singapore based Terraform Labs in 2018. Its market value then surged and became the third largest stable currency in the market, with a circulation supply of 16 billion coins.
Algorithmic stable currency is one of the three varieties of stable currency, but unlike USDT (TEDA currency) issued by Tether, a company under Bifinex exchange, and USDC, jointly developed by Coinbase and Goldman Sachs, in which US dollars or asset collateral are adopted as reserves to support the price, algorithmic stable currency uses algorithms to maintain the balance between the number of stable currency and sister coins, thus maintaining the value of stable currency anchored to US dollars.
UST should have a “stable link” with 1 dollar and maintain the balance between supply and demand by cooperating with Luna, a sister coin with fluctuating price, so as to maintain the price anchored at 1 dollar. Each time we make UST, Luna equivalent to 1 dollar will be destroyed or removed from circulation, and vice versa.
However, UST and Luna have suddenly “free fell” since last weekend. Due to the large number of UST sellers, they are compared to “Bank pushing” by the industry. According to some analysis, the potential disappearance of UST may change the future of stable currency regulation and even the process of decentralized finance itself.
UST once fell to the lowest 26 cents per coin on Wednesday, then rebounded to 49 cents, falling 44% in 24 hours. Luna has lost about 99% of its value in the past seven days, falling to 81 cents at one time and then rising to 3.67 dollars, falling 87% in 24 hours and 95% in the precious week. Simultaneously, bitcoin also declined half from the new high of 69000dollars in November last year.
Many people pointed out that the collapse of UST price under the pressure of the recent selling of cryptocurrencies will lead to the further panic in the market and may result in a potential chain reaction of accelerated collapse of mainstream cryptocurrencies. In addition to the loss of market confidence, it may also be related to the concern that the institutions behind UST have previously stored a large amount of bitcoin and are likely to be forced to become the largest seller from the largest purchaser of bitcoin in recent months.
