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
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,
Join the conversation!
Please share your thoughts about this article below. We value your opinions, and would love to see you add to the discussion!