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Stablecoin Implosion — LUNA and UST Lose Significant Value, Downturn Ripples Across the Crypto Economy

During the last few days, the crypto economy has been tumultuous as billions have fled the market in search of safety. The issues with LUNA sparked a significant sell-off as Terra’s native digital asset dropped 97% in value against the U.S. dollar in 24 hours. Terrausd has slipped 67% lower than the $1 parity and was trading at a low of $0.299 per unit at 9:00 a.m. (ET).

“Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before UST can start to repeg,” Kwon said. “There is no way around it. We propose several remedial measures to aid the peg mechanism to absorb supply. First, we endorse the community proposal 1164 to Increase basepool from 50M to 100M SDR *) Decrease PoolRecoveryBlock from 36 to 18 This will increase minting capacity from $293M to ~$1200M,” the Terra co-founder added.

Kwon also said that Terra could rebound from the collapse and noted that the project was not going anywhere. “Terra’s return to form will be a sight to behold,” Kwon tweeted. The Terra founder added:

We’re here to stay. And we’re gonna keep making noise.

Isla Perfito, the CEO of Sator, a community-first Web3 content engagement platform, said that there may be a chance the Luna Foundation Guard (LFG) still holds bitcoin. “People assume LFG already sold their BTC,” Perfito told News in a statement. “That’s why UST is pricing at .40 on the dollar. In the event that they have the BTC, their backing is better. Do Kwon should provide a balance snapshot of his BTC to save UST. The CPI numbers came in higher than expected today.” The CEO of Sator added:

In my opinion, inflation has peaked. Investors are now waiting for the stock market to bottom. With UST, 1 LUNA could be exchanged for 1 UST and vice versa. This is why we observed the Luna crash — when they decided to not keep the peg, they were selling Luna coins. With that said, there’s a chance that they have reserves to save UST.

Alex Tapscott, the managing director of the digital asset group at Ninepoint Partners, explained to News on Wednesday that Terra’s issue is similar to a hedge fund exploding. “This is not unlike what happens when a large hedge fund ‘blows up’ and is forced to unwind its positions,” Tapscott explained in an email. “It becomes a price taker causing the assets its own to suffer (though often just temporarily).” Tapscott continued:

Long term the thesis on Bitcoin and crypto remains intact. Bitcoin is the first digitally native money for the internet and crypto assets as a whole represent a 2nd era of the internet – an internet of value- that will continue to transform and rethink many industries.

What do you think about the LUNA and UST fiasco and how things have been unfolding? Let us know what you think about this subject in the comments section below.

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