"Crypto markets have been under pressure given macro events (tighter monetary policy, surging inflation, Russia’s invasion of Ukraine) and the correlation between bitcoin and global equities is high," Jaime Baeza, the chief executive of Miami-based crypto hedge fund ANB Investments, said in emailed comments. "However, the most recent fall in crypto prices is more due to the de-peg of the UST."
UST, which was the biggest algorithmic stablecoin by market value, had a market capitalization of around $18 billion last week. It started to lose its peg to the dollar on Saturday, and on Monday traded as low as 60 cents. This morning it has dipped to around 30 cents.The Luna Foundation Guard, a group created to support the UST dollar peg, has said it will defend its price by selling its $3 billion bitcoin reserves.
"This accelerated the selloff of the broader crypto market as panic spread, and a more black swan systemic-risk event loomed closer," Baeza said.
UST is designed so traders can exchange 1 UST for $1 worth of luna, no matter the price of UST. The Luna Foundation Guard was in the process of building up a $10 billion bitcoin-based crypto reserve when the crash happened.
Do Kown, the creator of UST and luna developer Terra Labs, has promised another bailout is imminent. On Tuesday, Kwon said he was "getting close" to "announcing a recovery plan for UST," helping the price to rally but it has since fallen back.
"With the [UST] peg gone, luna will go to zero by design (as arbitrageurs buy UST and sell luna) unless parity and trust are restored, which can only be done by means of a significant cash infusion and changes in the protocol," trader Alex Krüger posted to Twitter.
UST began to lose its dollar peg last week amid a broader asset crash that hit bitcoin, crypto prices, including luna, and stock markets. Some have speculated a seller was flooding the market with UST over the weekend to attack the stablecoin.
Meanwhile, around $5 billion worth of UST was drained out of the luna-based decentralized finance lending application Anchor.