LUNA collapses 91% in 24 hours and founder announces changes at UST

The drama of Earth and its stablecoin UST continues this Wednesday (11). According to CoinMarketCap, the LUNA token has collapsed by no less than 91% in the last 24 hours. As a result, its price dropped from nearly $15 to $1.51. However, it should be noted that the movements are occurring very fast, so these values ​​may be higher throughout the day. UST, on the other hand, continues to lose its parity with the dollar, falling 50% in the last 24 hours. Its current price is $0.43, but it dropped below $0.30 at dawn. In terms of market cap, the stablecoin has lost over $11 billion since May 9. On the other hand, LUNA lost 92% of its market value and dropped from the Top 10 to the 66th position. It is, therefore, a massive devaluation that affected the entire market.

Destruction of value on Earth in just one week. Source: CoinMarketCap.

imminent collapse

UST is a stablecoin that emerged based on an innovative proposal. Rather than being backed by traditional assets (ie cash, gold, etc.) or even cryptocurrencies, UST came up with a so-called algorithmic proposal. In this sense, the stablecoin sought to maintain its ballast using a minting and burning mechanism together with the LUNA token. At the same time, the stablecoin also adopted Bitcoin (BTC) as backing along with the dollar. The arrangement allowed investors to exchange a UST for US$1 in LUNA. Upon making this exchange, the Luna Foundation Guard (LFG) would destroy the exchanged UST, removing it from circulation. That way, whenever the UST drops below US$1, it was possible to arbitrage in the market. Experienced ones could buy UST at a discount and exchange it for $1, making a profit. This is a legitimate operation that is performed by various stablecoins. But because of the BTC crash, investors became suspicious of LFG’s ability to honor the stablecoin’s backing. The wave of withdrawals and market sales resulted in a real collapse in recent days, affecting the entire cryptocurrency ecosystem.

Earth’s Creator Announces Rescue Plan

During the collapse of LUNA and UST, Terraform Labs CEO Do Kwon promised to implement a rescue plan. This Wednesday, Kwon finally revealed this plan through a thread written on the twitter. At first, Kwon makes his analysis about the problem with the UST. According to him, the meat of the problem according to Kwon is the absorption of the UST supply. This absorption needs to be completed before ballast can be re-established.

“Before anything else, the only way forward will be to absorb the supply of the stablecoin that wants to exit, before the UST can regain the ballast. There is no way around it,” Kwon said.

Next, Kwon announced Proposition 1164, which increases UST’s issuance capacity. The proposal increases the Basepool from 50m to 100m SDR, which is a kind of “base currency” for Earth. The SDR is an equivalent to the Special Drawing Rights (SDR), created by the International Monetary Fund (IMF). With this increase, Terra would increase its issuance capacity from US$ 293 million to US$ 1.2 billion. Finally, Kwon said the new UST will be collateralized in assets rather than algorithmically.

“Naturally, this comes at a high cost for UST and Luna holders. But we will continue to explore various options to bring more exogenous capital into the ecosystem and reduce oversupply in the UST.

Also Read: BNB Price Will Return To $400 Soon, Analyst Says Also Read: Polkadex Wins Latest Polkadot Parachains Auction Also Read: Bitcoin and Ethereum Show Signs of Recovery Again. BNB loses capitalization and LUNA melts over 90%. Check Cryptocurrency Prices Today