So if you have 1,000 USDC tokens, for instance, they can at any time be exchanged for $1,000. The cryptocurrency market is in turmoil, exacerbated by the collapse of luna and the UST stablecoin, both tied to the terra blockchain. The token uses its sister token, LUNA, to maintain the dollar-pegged price of US$1 by using a set of on-chain mint and bur mechanisms.

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TerraUSD — or UST, for short — has fallen well below its intended $1 peg. With the surge in the value of LUNA , the native token of the Terra network, the UST moved to the #3 spot surpassing BUSD in terms of market cap. LUNA token has even momentarily surpassed Ether as the second most staked crypto. Everything was smooth sailing for the LUNA altcoin and its stablecoin, UST. In the face of Terra’s UST de-pegging nightmare this week, US Treasury Secretary Janet Yellen takes the chance to label stablecoins a “significant risk” that will have to be dealt with.

What Is Terras Ust?

He added that learning from this incident will help them to create decentralized money that is not just censorship resistant but it will be more transparent and resistant to failure. However, terra usd coin he mentioned that by keeping failures apart, he had worked and built some interesting apps. The final transaction, by “Wallet E,” took place over an hour after the peg was off balance.

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When UST’s price is too low, the reverse happens — UST gets burned and luna is minted. “If you’ve got, say, $405, and you burn one luna, you should be able to mint 405 of the UST stablecoin,” Carol Alexander, professor of finance at the University of Sussex, explains. Pedestrians walk past a display of cryptocurrency Bitcoin on February 15, 2022 in Hong Kong, China. Crypto project Terra is buying billions in bitcoin to support UST, a controversial stablecoin.

Kalkine : Why Is The Us Dollar So Strong?

If UST’s market value was well above peg, say $1.10, an arbitrageur could purchase $1.00 worth of LUNA and swap into UST via the on-chain mechanism — providing the $1.00 of LUNA in exchange for one newly minted UST, worth $1.10. The arbitrageur would then sell the UST on the market and pocket the difference between the UST market value and the on-chain mechanism’s value. This operation would expand the Forex supply of UST and, if repeated enough times, would reach a point where the expanded supply of UST roughly equated its demand at approximately $1.00. Over the three days from May 7 through May 9, Terra’s UST stablecoin deviated from its $1 peg in a sudden turn of events. After reviewing the publicly available transaction and exchange data, the research team at Jump Crypto has three key observations.

  • It has a circulating supply of 9.8 Billion USTC coins and a total supply of 9.81 Billion.
  • Sometimes, it takes only a couple of hours for the price to take a nosedive and disrupt the existing market structure.
  • The new plan will see the current Terra blockchain renamed to Terra Classic, while the new chain will simply go by Terra.
  • For example, too much demand for UST may result in its price topping $1.
  • These funds would provide a backstop in case of a dramatic fall in the value of UST.

“Terra’s app ecosystem contains hundreds of developers working on everything from DeFi to fungible labor markets, state-of-the-art infrastructure and community experience,” he said, proposing this should be preserved at the expense of terraUSD. Terraform Labs founder and CEO Do Kwon created the terra usd coin Luna Foundation Guard, a consortium whose job it is to protect the peg. The LFG had about $2.3 billion in bitcoin reserves, with plans to expand that to $10 billion worth of bitcoin and other crypto assets. If UST dipped below $1, bitcoin reserves would be sold and UST bought with the proceeds.

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