The last week has been a terrible one for the cryptocurrency markets as the trading in the zone has witnessed a massive value loss. Amidst all the Cryptocurrencies, the one that has been the talk of the town is Terra’s UST.
TerraUSD (UST) is the most popular stablecoin that is supported by the Terra on Ethereum blockchain. Since it’s a stablecoin, it was pegged against US dollar 1.00. But the other side of the picture reveals that UST isn’t backed by US dollars in a bank treasury rather minting of TerraUSD is done by burning of TerraUSD’s reserve asset, better known as LUNA.
Stablecoins are pegged to an external source which could be either a fiat currency, a cryptocurrency or any other thing whose value can be recognized. For most of the stablecoins, the supporting currency is US dollar in the ratio of 1:1.
The collapse of the market has brought us to a new phase of crypto economy where depegging is the new uproar. After Terra USD lost its value in the global market and was just reduced to 35% of its all time high, lost its dollar pegging. The beginning of this week saw the most popular stablecoin for cryptocurrencies, TerraUSD (UST), depegged from its $1 value. Though the promoters tried hard to hold on to the value but depegging brought a further downfall for Terra USD.
The slide of Terra USD has created panic amongst its investors. Depegging here implies that in this scenario if the UST in circulation is more in value than LUNA, all the investors can’t get a value of $1 for their Terra USD.
This kind of situation arose last time in May 2021, but the depegging of UST was brief as it recovered soon.
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