Terra USD (UST) is the third-largest stablecoin in terms of market capitalization and is currently the 10th largest cryptocurrency. Right behind it in 14th place is the cryptocurrency Terra (LUNA), which covers most of the value of UST.
Investors were particularly spooked the moment UST significantly surpassed LUNA’s market capitalization and massive liquidation of leveraged positions began to occur. After all, if LUNA’s market capitalization is less than UST’s, it’s quite possible that there are not enough funds in the project to sustain a stablecoin. It diverged from the dollar at one point to a price of $0.69.
Now UST is making its way back and at the time of writing the price is at around $0.9.
Terra is known for hedging its value with bitcoin
Terra is known for wanting to hold more bitcoin in the future than MicroStrategy, the largest bitcoin holding company for now. They also make no secret that they want to usher in a new monetary era for the Bitcoin standard. As co-founder Terry Do Kwon posted on his Twitter, among other things.
P2P electronic cash that is easier to spend and more attractive to hold #btc
— Do Kwon 🌕 (@stablekwon) March 14, 2022
Until recently, the company had something around 80,000 BTC in its possession. It is now likely to be contributing parts of its reserve to the system as part of ensuring the liquidity of its ecosystem. This was hinted at by Do Kwon in another very brief tweet.
Deploying more capital – steady lads
— Do Kwon 🌕 (@stablekwon) May 9, 2022
Investors have thus opened up a debate on whether Bitcoin is a sufficient backstop for a dollar-linked stablecoin in the current situation. After all, Bitcoin, like the market as a whole, is not experiencing the most pleasant of times, and in the last week alone its value has gone from $38,400 to $31,400.
The Binance exchange has already officially announced that withdrawals on the Terra Network $LUNA have been temporarily suspended.
— Binance (@binance) May 10, 2022