TerraUSD (UST) is a stablecoin launched on the Terra blockchain and powered by the LUNA token. Until recently, UST used to be one of the largest stablecoins in the crypto market, and the LUNA coin has been showing a good performance as well.
TerraUSD (UST) was introduced at the end of 2020 alongside other stablecoins powered by LUNA. How does the Terra ecosystem work, and what caused the recent crash of its coin? This is the question DotBig.com experts are going to answer today. Keep reading to learn more.
How does UST work?
TerraUSD (UST) belongs to the category of stablecoins. There are two types of such tokens – algorithmic and collateralized. The algorithmic type is more advanced because such stablecoins track the price of USD and apply smart contracts for this. Until recently, UST was considered to be one of the best examples of algorithmic stablecoins.
TerraUSD (UST) is operated on the Terra blockchain. By relying on the arbitrage process, the coin aims to track the price rates of USD. Since UST is an algorithmic coin, it doesn’t apply asset reserves, Instead, it uses LUNA toke, which was developed as the native cryptocurrency of the Terra system. This means these two coins are related by their smart contract, the usage of which is to achieve the necessary balance.
The value and supply of UST and LUNA coins are connected. In a nutshell, when UST goes up and exceeds $1 per token, LUNA holders can sell their amounts of this asset in order to provide the system with the possibility to stabilize the price of TerraUSD (UST) by converting LUNA tokens. If the UST price goes down, UST owners can convert their holdings into LUNA and increase the price of UST by decreasing its supply.
This means the balance between the assets is the most important thing. If one of them crashes, the stability of another will also be doubted. Because of this, both assets might become unattractive to investors.
Key Events Impacting LUNA Price
LUNA was started in 2018. However, until 2021, investors didn’t tend to be paying attention to this coin. LUNA coin didn’t perform any price rate changes until 2021 when it increased from $1.65 up to $85.47 by the end of the year and became the 9th largest cryptocurrency. The reason why it increased was the good performance of the Terra network. Its payment system attracted two million new users and became capable of executing more than $1-billion in transactions annually.
What Happened Recently?
As of May 22, 2022, the market capitalization of LUNA is $1.238 billion. Until recently, the market cap of the project exceeded $11 billion. So why did what was believed to be one of the best cryptocurrencies crash, and what might happen next?
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On May 8, Terra USD (UST), costing $2 billion, was extracted in a single action. After that, UST tokens worth hundreds of millions were immediately sold. Because of this, the price rate of LUNA decreased by 99%, which made investors hesitate about the capacity of the system.
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Because of the crash, LUNA is now traded at $0.0002. Before March 1, 2022, however, the coin reached its maximum and amounted to around $103.
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To solve the problem, developers are going to fork the Terra blockchain. Basically, this is the launch of a new blockchain. To do this, they are going to involve investments of LUNA and UST holders by distributing LUNA coins at a 50% discount.
Trading LUNA Coin with DotBig
The decision of whether it’s worth investing in LUNA is up to you, and we are going to reveal both advantages and disadvantages of this venture. However, what we can say for sure, is that DotBig.com is the best place to trade cryptocurrencies legal and easy.
The DotBig forex broker is a multi-asset trading platform that also offers its clients to invest in the most promising crypto tokens. With DotBig, traders and investors might be sure that their funds are safe. DotBig has advanced tools that help active traders to take advantage of the price rate movements if the right trading strategy is used.
The DotBig forex broker allows making deposits not only in fiat currencies but in digital money as well. Clients of the platform can instantly withdraw their funds via Bitcoin, Ethereum, Tether, or Litecoin.
Finally, the broker offers the DotBig card. It’s a unique tool that provides investors with the possibility to store their crypto funds on a card and quickly convert them into fiat money, which might be later withdrawn via ATMs into cash.
Pros & Cons
Pros
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LUNA has a very low entry-level. After the recent collapse of the system, the LUNA coin is extremely cheap, which might be a good entry point for beginners who operate small capitals;
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Despite the collapse, there is a chance that LUNA will recover and will reach $100 again;
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Terra doesn’t seem to be willing to give up – the developers are strongly intended to perform a successful fork and launch a new LUNA blockchain to restore the reputation of their brand;
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Except for starting a new blockchain, there is an alternative way to restore the value of the token. Some investors suggest that a certain amount of coins should be burnt. This move is supposed to decrease the supply of the coins and increase their price. This is one more possible way how LUNA might come back to its position.
Cons
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The recent collapse of the system made investors very doubtful about its capacity of the system. Actually, this was one of the most unexpected crashes in the crypto market in recent years.
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The volatility of the current crypto market increases the risks of investing in any cryptocurrency.
Conclusion
It’s difficult to answer whether LUNA and UST will recover to their previous positions. However, after the recent announcements of the project, more experts are optimistic. They believe that it is likely to restore its reputation and good performance.
