As of press time, the value of LUNA after the break was hovering at more than 10 cents. (Screenshot via TradingView)
Changes in market dynamics have caused the value of LUNA to break below multiple support levels at an alarming rate. The original terraUSD (UST) algorithmic stablecoin should remain 1:1 anchored with the U.S. dollar, but the general environment of the cryptocurrency market has long stopped supporting the platform to maintain its former false prosperity.
Analysis shows that LUNA has been under pressure to sell since last weekend. At the time, investors liquidated their gains on Anchor, a terra protocol used to profit on UST, and then slumped lower.
(Photo via CoinDesk Research)
Algorithmic stablecoins such as UST operate by being able to exchange or mint LUNA tokens equivalent to $1 at any time. In theory, this will help UST maintain its currency value stability and create a certain market demand for the two tokens.
Traders could have profited by continuing to buy and sell LUNA and UST while maintaining a 1:1 peg to the US dollar. Yet this week’s stampede — which hit a low of 22 cents on Wednesday — has resulted in additional LUNA tokens being minted and put on the open market.
Messari data shows that the circulating supply of LUNA on Thursday has more than tripled to 1.4 billion from 377 million two days ago. The LUNA token is also under significant selling pressure amid a surge in supply.
(Screenshot via Messari)
On the other hand, LUNA has managed to get the UST algorithm stablecoin on the road to recovery by sacrificing its own way. It was back at 60 cents during the European morning Thursday.
After a roller coaster week, Terra on Thursday proposed several measures to save the UST stablecoin and prevent LUNA from being severely diluted.
The tokens were worth nearly $4 billion last week. However, this week’s plunge has pushed LUNA out of the top 10 cryptocurrency list (temporarily #81), and its market value has shrunk to $720 million.
Even so, some market watchers remain optimistic about the long-term prospects of stablecoins. Partisia Blockchain co-founder Brian Gallagher said in a Telegram message:
Algorithmic stablecoins are still in the early stages of development, and since most coins are experimental, it is inevitable that they will encounter some setbacks in the process of maintaining pegs. But to grow, we must go through these trials and tribulations.
Embarrassingly, with the spread of panic, even Tether (USDT), the top 1 stablecoin market, encountered an unexpected situation of de-pegging from the US dollar in early trading on Thursday.