Crypto News

Terra Death Spiral Hits $3 As Bailout Rumors Fade

LUNA token is down 90% in the last 24 hours.

The central theses

  • Terra’s LUNA token is down another 90% today.
  • Efforts to restore UST’s dollar peg have heavily impacted LUNA’s price.
  • Do Kwon, CEO of Terraform Labs, has reached out to the community on Twitter, outlining the company’s next move as rumors of a possible bailout have faded.

Terra has collapsed further since the stablecoin the Blockchain has not regained its dollar peg. Rumors that a venture capital-backed bailout has failed have added downward pressure on LUNA’s price.

Terra’s downfall continues

The Terra ecosystem is breaking apart.

The Layer 1 blockchain token has fallen another 90% in the past 24 hours as selling pressure hit unprecedented levels.

Terra’s UST algorithmic stablecoin has also moved further away from its dollar peg, touching brief lows of $0.30 before staging a modest recovery. At the time of writing, LUNA is currently trading just above $3, down over 96% this week alone.

Terra Death Spiral Hits $3 As Bailout Rumors Fade, Crypto Trading News

LUNA/USD chart

(Source: CoinGecko)Efforts to restore UST’s dollar peg have heavily impacted LUNA’s price. UST aims to keep its bond algorithmic by allowing anyone to exchange 1 UST for $1 worth of LUNA tokens.

Normally, this algorithmic relationship would encourage arbitrageurs to extract value from the price difference between UST and s, which would help it maintain a price around $1.

Terra’s dual token mechanism typically keeps UST within 1% of its expected dollar value. However, when UST falls well below its dollar peg, the algorithmic relationship produces more LUNA tokens, which arbitrageurs must sell on the open market to profit from their trades.

If UST’s peg is not restored, the inflow of LUNA tokens can create a death spiral that drives the price continuously lower until UST’s peg is restored.

In response to LUNA’s meteoric fall, Terraform Labs CEO Do Kwon took to Twitter on Wednesday to reach out to the community and outline the company’s next move.

“Before anything else, the only way forward will be to absorb the stablecoin supply that wants to exit before $UST can start rebinding. There is no way around it,” explained Kwon, referring to the imbalance between the circulating supply of UST and the reduced one market capitalization by LUNA.

To expedite the process of reducing UST supply below LUNA’s market cap, Kwon has endorsed a new collaborative proposal that will increase UST combustion and LUNA minting capacity to $1.2 billion from the current $293 million will.

LUNA is not the only Terra ecosystem token that has suffered extreme losses in the last 24 hours. The Tokens of the Top TerraDeFi-Protocols like and Astroport are also down 72.3% and 81.6%, respectively.

According to blockchain data platform DeFi Llama, the total value locked in Terra DeFi protocols has fallen by more than 87% from $29.65 billion on May 5 to $3.75 billion today.

Yesterday, Terra’s LUNA token appeared to have stabilized around $30 as rumors of a bailout circulated on social media. According to Larry Cermak, Vice President for Research at The blockSeveral venture capital firms, including Jump Capital and Alameda Research, were rumored to have pledged $2 billion to “bail out” UST and help it regain its dollar peg.

However, a newer oneTwitter Post by crypto researcher Mhonkasalo indicates the fundraising may have fallen apart. Whether this rumor is true is not yet confirmed.

However, with LUNA’s ongoing collapse and dwindling trust in UST, it seems likely that previous supporters will get cold feet when asked to invest even more money to shore up the Terra ecosystem.

Source: Crypto News Deutsch

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button