LUNA drops 20% in a day as whale dumps Terra's UST stablecoin — selloff risks ahead?

LUNA drops 20% in a day as whale dumps Terra's UST stablecoin — selloff risks ahead?


Terra (LUNA) has plunged significantly after witnessing a FUD attack on its native stablecoin TerraUSD (UST).

The LUNA/USD pair dropped 20% between May 7 and May 8, hitting $61, its worst level in three months, after a whale mass-dumped $285 million worth of UST. As a result of this selloff, UST briefly lost its U.S. dollar peg, falling to as low as $0.98.

UST daily price chart. Source: TradingViewExcessive LUNA supply

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LUNA serves as a collateral asset to maintain UST’s dollar peg, according to Terra’s elastic monetary policy. Therefore, when the value of UST is above $1, the Terra protocol incentivizes users to burn LUNA and mint UST. Conversely, when UST’s price drops below $1, the protocol rewards users for burning UST and minting LUNA.

Therefore, during UST supply reduction,

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