{"id":238146,"date":"2022-05-21T13:30:36","date_gmt":"2022-05-21T12:30:36","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=238146"},"modified":"2022-05-21T13:13:50","modified_gmt":"2022-05-21T12:13:50","slug":"ust-decouples-from-usd-and-luna-plummets-by-99-9","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/ust-decouples-from-usd-and-luna-plummets-by-99-9\/","title":{"rendered":"Taking a deeper look into the UST-USD decoupling and how LUNA plummeted by 99%"},"content":{"rendered":"<p><a href=\"https:\/\/www.footprint.network\/@KikiSmith\/UST-Algorithm-Stablecoin-Analysis?channel=EN-254\"><span style=\"font-weight: 400;\">TerraUSDT (UST)<\/span><\/a><span style=\"font-weight: 400;\"> is (<em>though \u201cwas\u201d might be better<\/em>)an algorithmic stablecoin whose stability mechanism stemmed from the promise of a payout with <\/span><a href=\"https:\/\/www.footprint.network\/@DamonSalvatore\/Terra-Dashboard?channel=EN-254\"><span style=\"font-weight: 400;\">LUNA<\/span><\/a><span style=\"font-weight: 400;\">. Having traders mint and burn tokens as needed to ensure the stability of UST out of trust in the Terra blockchain.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, between the 9th and 10th of May, the UST\u2019s price crashed, falling below ten cents and completely losing its peg. Before its decoupling from USD, UST was the third-largest stablecoin by market cap. This makes the collapse one of the most concerning developments in crypto and something that everyone interesting in blockchain needs to understand.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Why did UST, which has been so stable for so long, decouple? What are the consequences?<\/span><\/p>\n<h2><b>Algorithmic Stablecoins Are Different from Other Stablecoins<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Before analyzing UST\u2019s decoupling, let's look at how it differs from the legal and over-collateralized stablecoins.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Algorithmic stablecoins do not require any collateral. They instead adjust the number of tokens held by users through currency price fluctuations.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Fiat and over-collateralized coins require collateral. For example, Tether (USDT) holds collateral in fiat USD. Hyper-collateralized coins use BTC and ETH as collateral. Because of the high price volatility of BTC and ETH, the collateral must be over-collateralized.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">UST is a stablecoin anchored to $1, but without sufficient collateral assets. Once the token price fell below $1, its whole ecosystem, including LUNA and the <\/span><a href=\"https:\/\/www.footprint.network\/@GraceAtreides\/Anchor-Protocol-Dashbord?channel=EN-254\"><span style=\"font-weight: 400;\">Anchor<\/span><\/a><span style=\"font-weight: 400;\"> protocol, were dragged down with it.<\/span><\/p>\n<h2><b>UST's Decoupling: Before and After<\/b><\/h2>\n<h3><b>UST token price stable at $1\u00a0<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Footprint Analytics data shows that UST was stable at around $1 for about 1 year, from May 27, 2021 to May 8, 2022. During this time, LUNA's price has seen 2 major increases, peaking at $116.32.<\/span><\/p>\n<figure id=\"attachment_238147\" aria-describedby=\"caption-attachment-238147\" style=\"width: 589px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238147 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/1-3.png\" alt=\"Footprint Analytics - Token Price: UST vs LUNA\" width=\"589\" height=\"397\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/1-3.png 589w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/1-3-300x202.png 300w\" sizes=\"(max-width: 589px) 100vw, 589px\" \/><figcaption id=\"caption-attachment-238147\" class=\"wp-caption-text\">Footprint Analytics &#8211; Token Price: UST vs LUNA<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">The stability of UST at the $1 anchor was the driving force behind the growth of Terra's ecosystem.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The liquidity of the Anchor protocol in the past accounted for 50% of Terra TVL, and the stable storage income supported the stability of UST at $1. It provided more than $267 million in UST earnings reserves, which allowed users to earn 20% APY by depositing UST on the protocol\u2014much higher than returns from other stablecoins. High yields are a big factor driving stablecoin demand and also\u00a0 led to Anchor attracting $17.2 billion in TVL.<\/span><\/li>\n<\/ul>\n<figure id=\"attachment_238149\" aria-describedby=\"caption-attachment-238149\" style=\"width: 591px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238149 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/2-3.png\" alt=\"Footprint Analytics - Anchor TVL vs UST Price\" width=\"591\" height=\"402\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/2-3.png 591w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/2-3-300x204.png 300w\" sizes=\"(max-width: 591px) 100vw, 591px\" \/><figcaption id=\"caption-attachment-238149\" class=\"wp-caption-text\">Footprint Analytics &#8211; Anchor TVL vs UST Price<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Luna Foundation Guard (LFG) was established in January 2022 to support the stability of the UST and facilitate the development of the Terra ecosystem. In February, it raised $1 billion in financing from multiple VCs through the sale of LUNA, backed by BTC to help anchor UST and develop the Terra ecosystem.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">However, these mechanisms and reserves were not enough to sustain the stability of UST.<\/span><\/p>\n<h3><b>Why did UST decouple?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The price of UST fell from $1 on May 8 to around $0.18 on May 14. It briefly bounced back up, teasing that perhaps the mechanism would be resilient enough, but then resumed its crash.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As of May 16, UST appears to be dead and has killed the market\u2019s confidence in algorithmic stablecoins as well.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">What happened?<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A giant whale sold $285 million worth of UST on May 7. This was the trigger that prompted the decoupling of the UST from the dollar.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">As UST lost its peg, LUNA started printing. This is because<\/span> <span style=\"font-weight: 400;\">users abandon the decoupled USTs in their hands, resulting in more minting of LUNA, which triggers a deeper drop in LUNA.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">However, the devaluation of LUNA happened so quickly that it was simply unable to buy back enough UST to repeg it to $1.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Both LUNA and UST crashed to cents.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Anchor, which relies on the Terra Fund to continually replenish its reserves to cover the 20% APY also crashed.<\/span><\/li>\n<\/ul>\n<figure id=\"attachment_238151\" aria-describedby=\"caption-attachment-238151\" style=\"width: 1600px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238151 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/3-3.png\" alt=\"Screenshot Source - Anchor Website Yield Reserve\u00a0\" width=\"1600\" height=\"574\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/3-3.png 1600w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/3-3-300x108.png 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/3-3-1024x367.png 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/3-3-768x276.png 768w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/3-3-1536x551.png 1536w\" sizes=\"(max-width: 1600px) 100vw, 1600px\" \/><figcaption id=\"caption-attachment-238151\" class=\"wp-caption-text\">Screenshot Source &#8211; Anchor Website Yield Reserve<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">LFG's reserve of BTC was supposed to serve as a backstop to help anchor the UST. However, the price of BTC has been falling since its peak in November last year. As of May 16, the price of BTC has fallen below $30,000.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This has a negative impact on the anchoring of UST and the development of the Terra ecosystem.<\/span><\/p>\n<figure id=\"attachment_238153\" aria-describedby=\"caption-attachment-238153\" style=\"width: 571px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238153 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/4-3.png\" alt=\"Footprint Analytics - BTC Price\" width=\"571\" height=\"395\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/4-3.png 571w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/4-3-300x208.png 300w\" sizes=\"(max-width: 571px) 100vw, 571px\" \/><figcaption id=\"caption-attachment-238153\" class=\"wp-caption-text\">Footprint Analytics &#8211; BTC Price<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">UST is different from fiat currency stablecoins and does not have sufficient collateral assets.<\/span><\/li>\n<\/ul>\n<h2><b>How the Collapse of UST Price Drop Affects the Terra Ecosystem and Crypto<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">With its precipitous collapse, the Terra ecosystem appears to be dead.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With UST below $1, the price and market confidence in Terra's native token, LUNA, collapsed. Footprint Analytics data shows that the drop in LUNA's token price and the rapid abandonment of UST by UST holders led to more Minting of LUNA, which triggered an even deeper drop in LUNA. As of May 16, LUNA's token price fell below $0.11 from a peak of $116.32, a 99.9% drop in less than a month.<\/span><\/p>\n<figure id=\"attachment_238155\" aria-describedby=\"caption-attachment-238155\" style=\"width: 898px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238155 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/5-3.png\" alt=\"Footprint Analytics -\u00a0 Daily Mint & Burn: LUNA\" width=\"898\" height=\"427\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/5-3.png 898w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/5-3-300x143.png 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/5-3-768x365.png 768w\" sizes=\"(max-width: 898px) 100vw, 898px\" \/><figcaption id=\"caption-attachment-238155\" class=\"wp-caption-text\">Footprint Analytics &#8211;\u00a0 Daily Mint & Burn: LUNA<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">The market cap of UST and LUNA has inverted, with LURA's market cap being smaller than UST's. When LUNA falls, sufficient liquidation space is generally reserved to avoid extreme situations of insolvency.Now the market cap has fallen off a cliff to $1.2 billion for LURA and $1.15 billion for UST. This drop could easily cause confidence to collapse and a death spiral to occur.<\/span><\/p>\n<figure id=\"attachment_238157\" aria-describedby=\"caption-attachment-238157\" style=\"width: 594px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238157 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/6-1.png\" alt=\"Footprint Analytics - UST vs LUNA of Market Cap\" width=\"594\" height=\"402\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/6-1.png 594w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/6-1-300x203.png 300w\" sizes=\"(max-width: 594px) 100vw, 594px\" \/><figcaption id=\"caption-attachment-238157\" class=\"wp-caption-text\">Footprint Analytics &#8211; UST vs LUNA of Market Cap<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">Of course, in addition to the currency price, market cap and other indicators being affected, there are also Terra ecosystem protocols TVL showing negative growth. Especially for protocols such as Anchor and <\/span><a href=\"https:\/\/cryptoslate.com\/what-made-lido-a-top-eth-staking-platform\/\"><span style=\"font-weight: 400;\">Lido<\/span><\/a><span style=\"font-weight: 400;\">, TVL has dropped by more than 100%. Anchor is the most affected by the algorithm stable currency UST, while Lido is affected by the drop in the price of LUNA.<\/span><\/p>\n<figure id=\"attachment_238159\" aria-describedby=\"caption-attachment-238159\" style=\"width: 990px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-238159 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/7-1.png\" alt=\"Footprint Analytics - Terra Top 10 Protocols TVL Change\" width=\"990\" height=\"660\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/7-1.png 990w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/7-1-300x200.png 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/7-1-768x512.png 768w\" sizes=\"(max-width: 990px) 100vw, 990px\" \/><figcaption id=\"caption-attachment-238159\" class=\"wp-caption-text\">Footprint Analytics &#8211; Terra Top 10 Protocols TVL Change<\/figcaption><\/figure>\n<h2><b>Summary<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The current market panic is still spreading, the algorithmic stablecoin UST is severely unanchored, and the LUNA token price has seemed to take a catastrophic hit. While its survival doesn\u2019t seem likely, crazy things can happen in the crypto world.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"><strong>Date & Author:<\/strong> May. 2022, Vincy<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>Data Source:<\/strong> Footprint Analytics &#8211; <\/span><a href=\"https:\/\/www.footprint.network\/@KikiSmith\/UST-Algorithm-Stablecoin-Analysis?channel=EN-254\"><span style=\"font-weight: 400;\">Algorithmic Stablecoin Analysis<\/span><\/a><\/p>\n<p><strong>This piece is contributed by <a href=\"https:\/\/www.footprint.network\/\">Footprint Analytics<\/a> community.<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">The Footprint Community is a place where data and crypto enthusiasts worldwide help each other understand and gain insights about Web3, the metaverse, DeFi, GameFi, or any other area of the fledgling world of blockchain. Here you'll find active, diverse voices supporting each other and driving the community forward.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><strong>What is Footprint Analytics?<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">Footprint Analytics is an all-in-one analysis platform to visualize blockchain data and discover insights. It cleans and integrates on-chain data so users of any experience level can quickly start researching tokens, projects, and protocols. With over a thousand dashboard templates plus a drag-and-drop interface, anyone can build their own customized charts in minutes. Uncover blockchain data and invest smarter with Footprint.\u00a0\u00a0<\/span><\/p>\n<ul>\n<li><a href=\"https:\/\/www.footprint.network\/?cnl=cryptoslate\">Footprint Website<\/a><\/li>\n<li><a href=\"https:\/\/discord.gg\/3HYaR6USM7\">Discord<\/a><\/li>\n<li><a href=\"https:\/\/twitter.com\/Footprint_DeFi\">Twitter<\/a><\/li>\n<li><a href=\"https:\/\/t.me\/joinchat\/4-ocuURAr2thODFh\">Telegram<\/a><\/li>\n<li><a href=\"https:\/\/www.youtube.com\/channel\/UCKwZbKyuhWveetGhZcNtSTg\">YouTube<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>TerraUSDT (UST) is (though \u201cwas\u201d might be better)an algorithmic stablecoin whose stability mechanism stemmed from the promise of a payout with LUNA. Having traders mint and burn tokens as needed to ensure the stability of UST out of trust in the Terra blockchain. However, between the 9th and 10th of May, the UST\u2019s price crashed, [&hellip;]<\/p>\n","protected":false},"author":828,"featured_media":238161,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[120,46940,35372,32631],"tags":[],"prediction_market_topic":[],"post_folder":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v21.9 (Yoast SEO v21.9.1) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Taking a deeper look into the UST-USD decoupling and how LUNA plummeted by 99%<\/title>\n<meta name=\"description\" content=\"Being the third largest stablecoin by market cap, why did the algorithmic stablecoin UST experience such a severe price de-anchoring?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/cryptoslate.com\/ust-decouples-from-usd-and-luna-plummets-by-99-9\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Taking a deeper look into the UST-USD decoupling and how LUNA plummeted by 99%\" \/>\n<meta property=\"og:description\" content=\"Being the third largest stablecoin by market cap, why did the algorithmic stablecoin UST experience such a severe price de-anchoring?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/cryptoslate.com\/ust-decouples-from-usd-and-luna-plummets-by-99-9\/\" \/>\n<meta property=\"og:site_name\" content=\"CryptoSlate\" \/>\n<meta property=\"article:author\" content=\"https:\/\/www.facebook.com\/FootprintAnalytics\" \/>\n<meta property=\"article:published_time\" content=\"2022-05-21T12:30:36+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-05-21T12:13:50+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/05\/254-\u7b97\u6cd5\u7a33\u5b9a\u5e01\u76f8\u5173.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"670\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Footprint Analytics\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Footprint Analytics\" \/>\n<meta name=\"twitter:site\" content=\"@cryptoslate\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Footprint Analytics\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"7 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"NewsArticle\",\"@id\":\"https:\/\/cryptoslate.com\/ust-decouples-from-usd-and-luna-plummets-by-99-9\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/cryptoslate.com\/ust-decouples-from-usd-and-luna-plummets-by-99-9\/\"},\"author\":{\"@type\":\"Person\",\"@id\":\"https:\/\/cryptoslate.com\/author\/footprint-analytics\/#person\",\"name\":\"Footprint Analytics\",\"url\":\"https:\/\/cryptoslate.com\/author\/footprint-analytics\/\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/cryptoslate.com\/author\/footprint-analytics\/\"},\"image\":{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/cryptoslate.com\/author\/footprint-analytics\/#authorimage\",\"url\":\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2021\/10\/footprint-logo-300x300.jpg\",\"contentUrl\":\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2021\/10\/footprint-logo-300x300.jpg\",\"caption\":\"Footprint Analytics\"},\"description\":\"Footprint Analytics provides API and visualization tools to uncover and visualize data across the blockchain, including NFT and GameFi data. 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