UST stablecoin is struggling to maintain a parity of $ 1 amid the turbulence of the crypto market

Algorithmic stablecoin UST, which is part of the Terra crypto ecosystem, is struggling to maintain parity with the dollar after Saturday’s market event.

During the market event, the UST price reached the lowest level of USD 0.9857 on Binance compared to USDT. This trading pair is the most comprehensive for the UST, with a volume of $ 1.36 billion reported in the last 24 hours.

As previously reported by The Block, UST is an algorithmically stable coin, meaning it relies on market incentives to maintain its relationship. In addition to the burning mechanism that includes the LUNA token, used as part of Terra’s management process, UST is also supported by a growing reserve of digital assets such as bitcoin that can be used to defend the stable parity of a stable coin with the dollar.

For now, it is unclear why the market event occurred. Crypto researcher Mika Honkasalo noticed a significant replacement of the UST for the USDC, another stablecoin, on the Curve. In fact, after the loss of parity, many UST owners exchanged their UST for different stable coins in Curve’s 53 target pool – as evidenced by the pool’s liquidity imbalance.

Later Saturday, Honkasalo noted that “maintaining UST bindings leads to hundreds of millions in ETH sales in the chain. Who knows how many cryptocurrencies these entities sell on CEXs to try to return UST to $ 1.”

In the aftermath of losing parity, Terraform Labs co-founder Do Kwon took to Twitter and posted “I got up – a fun morning.”

Market recovery began to take shape following Kwon’s tweet. Parity with the dollar seems to have remained unattainable. At the time of printing, the UST is trading at $ 0.9939 on Binance.

LUNA is currently trading at $ 61.10, according to CoinGecko, down nearly 16% in the last 24 hours.

As might be expected, crypto social networks were ignited by speculation and fierce conversations, with some claim that the event represented a coordinated effort against UST and Terra.

Saturday’s event was not the first time that the UST fell below the dollar parity. In May 2021, UST suffered what the Terra team suffered called “extreme volatility” and temporarily fell to just $ 0.96 before recovering.

The event followed a drop in the price of bitcoin on Thursday. At the time of printing, BTC was trading hands at a price of about $ 34,600 per coin on Coinbase.

Looking beyond cryptocurrencies, turbulence hit global markets last week, corresponding to a drop in bitcoin on Thursday. Last week, the Federal Reserve raised interest rates by half a point.

At least one market observer has suggested that a combination of crypto and macro sentiment could enhance the significance of a market event.

“It’s not a big or lasting depeg, but given that LFG was one of BTC’s biggest buyers in 2022 and an overall weak macro climate, it certainly puts the community on the edge,” GSR Markets co-founder Rich Rosenblum told The Block.

Leave a Comment