UST Crash: What You Should Know About

UST has fallen to below 0.33 cents from staying at $1 - a price at which it was pegged too by
LUNA foundations. Why did it happen? How did it happen? And what are going to be its
consequences? Let’s discuss all of them in detail below.

Backgrounder:
As holders began to abandon the token in what some have characterized as a "bank run," the
price of TerraUSD, also known as UST, dropped below 40 cents for the first time on Wednesday,
May 11. According to statistics provided by CoinGecko, the price of the coin reached a low of 31
cents at one time.

Case in point, UST and LUNA units are destroyed and new ones are created as part of the
Terra protocol in order to regulate supply. UST may be removed from circulation and traded for
LUNA when its price falls below $1, reducing the quantity of UST and raising its price. At least,
that's how it should work in principle.

Additionally, Terra's founder, Do Kwon, purchased $3.5 billion worth of bitcoin to serve as an
insurance policy in the event of an emergency for the University of Texas System (UST).
Untested and unimplemented is the hypothesis that UST might be exchanged for bitcoin instead
of LUNA in the future.

Kwon's LUNA Foundation Guard stated on Monday that it would also lend $750 million in UST
to trading businesses to “help safeguard the UST peg” and acquire additional bitcoins “as
economic conditions normalize.’

The firm later tweeted that it had removed 37,000 bitcoins, worth over $1 billion at present rate.
UST is now being bought with “little or no” of the borrowed bitcoins, LUNA Foundation Guard
claimed.

The firm's wallets in bitcoin also appeared empty. All this started a selling frenzy among crypto
investors that LUNA is going down. Within minutes, LUNA had lost almost 90% of its value
coming down from $115 to $1 in under two hours.

LUNA is created to stay at a minimum of $1 as it is pegged to its sister token UST, that did not
happen. As soon as the currency became devalued, it rolled down to below $1 and UST
depegged.
UST depegging brought its value from $1 to $0.33 at one time - although it came back to $0.40
in a few hours.

LUNA’s falling brings a major blow to cryptocurrencies as we know it. It also brings the question
that all had feared: ARE CRYPTO CURRENCIES SAVE TO INVEST IN?
What is UST?
Stablecoins are a sort of cryptocurrency whose value is fixed to a fiat currency, generally the US
dollar. The technology used to maintain the price consistent is unique to Terra stablecoins.
Unlike USDC and USDT, UST is algorithmically stabilized. This includes employing a smart
contract-based technology to permanently destroy LUNA tokens in order to manufacture fresh
UST tokens.
In the Terra ecosystem, users may always exchange LUNA for UST for $1, regardless of the
market price of either token. This is significant because if demand for UST increases and its
price climbs over $1, LUNA holders can profit by trading $1 of LUNA for one UST token (which
in this case is worth more than $1 owing to increased demand).
When LUNA is swapped, some is burnt (permanently removed from circulation) and the rest is
placed into a communal bank. The treasury funds are then invested in apps and services that
enhance the Terra environment.
Burning LUNA tokens diminishes the overall supply, making them scarcer and hence more
valuable. Producing new UST tokens dilutes the current supply, bringing the total price back
down to $1.
A user may also trade their UST tokens for LUNA, which is worth more because of its scarcity,
and therefore pocket another risk-free return.

What is LUNA? How is it Pegged to UST?

According to Terra's white paper, the creators wanted to create a peer-to-peer electronic
payment system. Terra uses a system of stablecoins, cryptocurrency whose value is tied to
assets or fiat currencies.
The most popular is UST, which follows the price of US dollars, with one UST token hovering
around $1. It is pegged to the dollar using the ecosystem's second cryptocurrency, LUNA.
LUNA helps stabilize the price of Terra stablecoins by reducing market volatility.
In simple terms, UST was supposed to remain at $1 always. LUNA was to be burnt when a user
wanted to buy UST. The more LUNA was burnt, the more expensive it will get. However, UST
could also be burned to acquire LUNA tokens if the UST value was to go below $1.
That didn’t happen in the current market crash since people were more interested in putting
their money out - into stable coins. The demand influx brought LUNA’s price down. When the
equilibrium was damaged, it directly impacted UST price as well. Rest we saw was a domino
effect.

Who Should Be Blamed for UST Crash?

The current FUD onslaught on TerraUSD is blamed for the decline (UST). A purposeful market
action that promotes unfavorable views about an asset is known as FUD.
Between May 7 and 8, 2022, one huge crypto whale unloaded $285 million worth of UST on the
open market. Due to the scale of the UST withdrawal, the token lost its 1:1 peg to the USD and
fell to $0.98.

Majority of the crypto investors are blaming the war for the crypto fall. The recent drop is being
credited to a loss of confidence in the cryptocurrency market amid growing economic stresses
around the world carried on by Russia's attack of Ukraine and post-Covid lockdowns. This
comes after the market experienced a significant increase in volatility following the release of
the Covid.

Is UST Unsafe to Invest In?

UST is an algorithmic token. It is not backed by any major reserve like US Dollar, Gold, Silver, or
Copper in reserve. Because the token is artificially baked through tying it to another coin, it was
unstable from the very start.
The point is: WE ALL KNEW IT!
We just didn’t anticipate such a major crash as it was unthinkable that the whole world would
want to sell LUNA at a single time. The panic not only made the coin unstable because the
algorithm crashed, but it also impacted actual money that millions had put into this specific coin.

Should You Buy LUNA Now?

Buying LUNA is a risky move. You may buy LUNA if you want to and there are predictions that
LUNA can jump back to $100 or more in the coming years but that is just hearsay at this time. If
you want to buy LUNA, only invest the money that you can easily part ways with if things go
awry.

People have lost trust in LUNA and because of this lost trust, there is a significant chance that
LUNA will not gain back what it has lost in the market crash. Even if it does, it will take years for
LUNA to recover.

How Much Did People Lose with LUNA?

People have lost a significant amount of money, some even claiming to have lost over $500,000
that they borrowed from the bank to invest in cryptocurrencies. Some have even said that they
sold their house to invest in crypto markets. Now with the LUNA crash, all their hard earned life
savings are gone within minutes.

Did People Do Suicide Because of LUNA & UST Crash?

Although news of such events is in the air, there is no authentic claim about it in the market. But
with such big monies lost, there are chances of such news stories coming out true.

Will People Trust Crypto Currencies Again?

Yes and no. Cryptocurrencies have always remained volatile and people know it. Still people like
to take chances and they invest a lot of money in the system that they cannot bear to lose.
When this happens, a simple crypto crash creates a panic mode in the market. As a result, a
FUD like situation occurs that stresses the currencies further.

Will Cryptocurrencies Go Back Up?

Yes, cryptocurrencies will go back up when people start reinvesting their funds back in them. At
this time, most of them are investing their funds in US dollars since US banks have increased
the interest rates by 0.5%. Since the US dollar is by far the safest way to accrue interests,
people are taking out their money from the cryptocurrencies and buying Federal Reserve bonds.