The UST drama of the country and its stable coin continues on Wednesday (11). According to CoinMarketCap, the LUNA account has collapsed as much as 91% in the last 24 hours. As a result, its price dropped from nearly $ 15 to $ 1.51.
It should be noted, however, that the movements occur very quickly, so these values may be higher throughout the day. The UST, on the other hand, continues to parity with the dollar and has fallen 50% in the last 24 hours. Its current price is $ 0.43, but it dropped below $ 0.30 at dawn.
Measured at market value, stablecoin has lost more than $ 11 billion since May 9th. On the other hand, LUNA lost 92% of its market value and fell from the Top 10 to 66. This is a huge devaluation that affected the entire market.
The destruction of value on earth in just a week. Source: CoinMarketCap.
The UST is a stable coin created on the basis of an innovative proposal. Instead of the UST supporting traditional funds (i.e., cash, gold, etc.) or even cryptocurrencies, the UST put forward a so-called algorithmic proposal.
In this sense, stablecoin sought to maintain its ballast by using a percussion and combustion mechanism in conjunction with the LUNA brand. At the same time, stablecoin also introduced Bitcoin (BTC) in support of the dollar.
The arrangement allowed investors to exchange the UST for one US dollar at LUNA. In connection with this exchange, the Luna Foundation Guard (LFG) destroyed the exchanged UST and removed it from circulation.
In this way, whenever the UST drops below $ 1, the market was able to do arbitrage. Experienced can buy a UST at a discount and exchange it for $ 1 to make a profit. This is a legal operation performed by several stable coins.
But because of the collapse of BTC, investors began to question LFG’s ability to respect stablecoin’s support. The wave of withdrawal and market sales in recent days led to a real collapse that affected the entire cryptocurrency ecosystem.
The Creator of the earth announces the plan of salvation
During the collapse of LUNA and the UST, Do Kwon, CEO of Terraform Labs, promised to implement a rescue plan. This Wednesday, Kwon finally revealed this plan through a thread written in the thread twitter.
First, Kwon does his analysis of the UST problem. According to him, the meat of the problem, according to Kwon, is the absorption of the UST supply. This absorption must be completed before the ballast can be reconstituted.
“Before anything else, the only way forward is to suck up the supply of a stable coin that wants to leave before the UST can get the ballast back. It can’t be circumvented,” Kwon said.
Next, Kwon released Proposition 1164, which will increase UST’s issuance capacity. The proposal raises Basepool from 50 million to 100 million SDRs, a kind of “base currency” for the planet. The SDR corresponds to the Special Drawing Right (SDR) created by the International Monetary Fund (IMF).
With this increase, Terra would increase its issuance capacity from US $ 293 million to US $ 1.2 billion. Finally, Kwon said the new UST will be collateralised funds and not algorithmically.
“Naturally, this will be a high cost for UST and Luna holders. But we will continue to explore different options to bring more external capital into the ecosystem and reduce oversupply in the UST.
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