UST Woes Threaten The Trust Of Algorithmic Stablecoins

Terra's LUNA Is Now The Largest Staked Crypto Asset After Edging Out Solana, Ether, and Cardano

Terra’s UST, since its launch, has been the center of much attention as the crypto world remains divided on the feasibility of the initiative. With recent crypto price volatility and the stablecoin losing its peg to the dollar again, The Block’s Research Vice President Larry Cermak urged Terra to collateralize the stablecoin as he fears they risk losing investors’ trust.

A Breaking Point For The Stablecoin Decentralization Ideal?

Terra’s UST has suffered from major price fluctuations following the general uncertainty and drop in prices in the broader crypto market and Bitcoin, its major reserve currency. Consequently, on Monday, the value of the UST stablecoin dropped to as low as $0.6. Efforts from the Luna Foundation Guard (LFG) and Terraform Labs are yet to pay off as the stablecoin has failed to recoup its losses, the stablecoin is yet to maintain its peg, trading now around $0.45, over 50% down in the last 24 hours.

Meanwhile, analysts still have reservations about the LFG’s tactics and are skeptical of UST regaining its parity with the dollar. In a tweet on Tuesday, the Block’s Larry Cermak expressed such sentiments, noting that even if parity with the dollar is restored, investor trust is gone. Cermak’s post read:

“There is a rumor spreading about Jump, Alameda, etc. providing another $2B to ‘bail out’ UST. Whether this rumor is true or not, it makes perfect sense for them to spread. The biggest question here is, even if they can get it to $1 by some miracle, the trust is irreversibly gone.”

In a follow-up tweet, the researcher urged the LFG to compromise on their idea of backing the stablecoin with Bitcoin by collateralizing. Cermak wrote, “I personally think the only way to save it now is by fully (or potentially very close to fully) collateralizing. Otherwise, I don’t see it ever being used again.”

It is worth noting that UST is no longer the only mainstream algorithmic stablecoin. Tron’s USDD is now in its early days of issuance, while Cardano’s Djed offering and IOST’s stablecoin rollouts are in the works. The success or failure of Terra’s UST will likely affect the choices other developers will make in their approach while also influencing the general market perception of algorithmic stable coins.

Terra’s Efforts To Maintain The Peg

Following the massive dump of the stablecoin over the weekend, the LFG has been actively working to regain the peg. As reported on Monday by ZyCrypto, the foundation revealed plans to loan out $1.5 billion in BTC and UST to market makers, creating a demand for the UST stablecoin to help push the price up.

Yesterday, the LFG confirmed that they have now transferred an additional 28,205.5 Bitcoin loan to market makers adding that it was also being used to purchase more UST. Presently, the Bitcoin address of the LFG is now empty.

The network’s native token LUNA has taken quite a hit in all of this. LUNA is now trading around the $1.61 price point, dropping by 95% in the last 24 hours and 98% in the last seven days.