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Trending Project

Trending Project: TerraUSD (UST) 📈

Crypto’s largest decentralized stablecoin is under pressure.
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Feb 8, 20232 min read

  1. Sector: Stablecoin
  2. Network: Multi-chain
  3. Market Cap: $18.32 billion
  4. Hotness Rating: 🔥

UST is an algorithmic, dollar-pegged stablecoin. UST is in the midst of a significant stress test as it has experienced significant downward pressure on its peg since May 7. As of writing, the stablecoin currently trades at roughly ~$0.985 on Binance and Curve on Ethereum.

📖 To read more about how UST works in depth, click here.

UST/USDT On Binance - Source: Trading View

The de-pegging comes in the midst of major outflows on Anchor, which has seen its UST deposits fall 25.2% over the past 3 days from $14.08 billion to $10.40 billion. Anchor, a money market that has helped to catalyze the growth of UST by paying a fixed rate—currently 18.57%—to UST depositors, holds more than 55.7% of stablecoin’s total supply.

Anchor UST Deposits (In Yellow) - Source: Smart Stake

The UST-3CRV Curve pool, the most liquid pool for the stablecoin on Ethereum, has also become imbalanced, currently at a ratio of ~81.2% UST to ~18.8% 3CRV. The pool, which first became imbalanced on May 7, intends to have a 50/50 split between UST and 3CRV (the base trading pool for stablecoins on the DEX which consists of USDC, USDT, and DAI). While it holds just ~3.4% of the total UST supply, liquidity drying up may prove to have a significant impact on the market psychology and confidence in the stablecoin.

USTw-3pool Balance Proportion - Source: Dune Analytics

Along with the duress of the peg and Curve liquidity, the price of LUNA has dropped more than 30% from $76 to $53 over the past three days. With its circulating market cap falling to $18.24 billion, meaning the value of LUNA is less than that of all outstanding UST. As a result, not everyone would be able to exit the system, i.e. redeem $1 of UST for $1 of LUNA, should they choose to.

UST and LUNA Market Capitalization - Source: Coin Gecko

To help stabilize the peg, the Luna Foundation Guard (LFG), announced they will be loaning $750 million of Bitcoin and $750 million of UST to OTC desks. This Bitcoin, which was accumulated as a part of the Forex Reserve fund, will likely be sold in order to help bring the peg back to $1, but in doing so, runs the risk of further bringing down the price of LUNA.

Hotness Rating (🔥): DeFi’s largest decentralized stablecoin is undergoing a significant stress test. Terra investors and UST holders should take precautions and monitor this situation closely.

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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