Drama in the Terra ecosystem has taken a turn for the worse as the LUNA price continued its third consecutive day of falling. Over the past 24 hours, the embattled asset has tumbled another 93% to sink below the $5 mark. This comes as the de-pegging of the TerraUSD (UST) stablecoin with U.S. dollars triggered a bearish sentiment among LUNA traders.
Do Kwon, the founder, and CEO of Terra, has finally announced his plan to restore UST’s peg.
Can Terra Rescue LUNA’s Death Spiral?
Terra had been in the spotlight for a couple of weeks, thanks in large part to Do Kwon unveiling plans to boost Luna Foundation Guard’s (LFG) bitcoin reserves to $3 billion and create a $10 billion fund in the long term.
On May 8 (Sunday), LUNA changed hands at around $66. The token, however, started sliding as Terra’s algorithmic stablecoin lost its $1 peg. UST continued its slump yesterday, forcing Binance and other major cryptocurrency exchanges to halt withdrawals. Today has not been kind in terms of recovery. As of writing, UST has fallen precipitously to 44 cents, despite the LFG liquidating its bitcoin holdings to help the stablecoin regain its intended parity with the dollar.
Over 19 hours ago, Terra’s Do Kwon tweeted that he was “close to announcing a recovery plan for $UST”. A recovery plan will most likely help the LUNA cryptocurrency, which has dropped 97.48% in the past week and 28.5% in the past hour alone. At the current price of $2.18, the token is down 98.3% since all-time highs of $119.18 in April 2022 — approximately a month ago.
The collapse of UST and LUNA prices has sent shockwaves through the crypto market as many observers wonder when the rout will come to an end. Meanwhile, investors have fled Terra’s yield-generating protocol Anchor in droves, data indicates.
While acknowledging that the past 72 hours have been feverish for Terra investors, Do Kwon noted in a Wednesday tweet thread that he is working tirelessly to resolve the crisis.
“Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg. There is no way around it,” he stated.
For starters, he is supporting a community proposal that will raise the amount of LUNA tokens being minted in a day. This would theoretically help more holders of UST to sell while the market absorbs.
“Naturally, this is at a high cost to UST and LUNA holders, but we will continue to explore various options to bring in more exogenous capital to the ecosystem & reduce supply overhang on UST,” the Terra creator added.
UST’s Mind-Boggling Sell-Off Sparks Fresh Calls To Regulate Stablecoins
Notably, UST’s steep decline has also attracted the attention of US regulators. In a May 10 hearing, U.S. Treasury Secretary Janet Yellen once again called on Congress to approve stablecoin legislation.
“A stablecoin known as TerraUSD experienced a run and declined in value. I think that this simply illustrates that this is a rapidly growing product and there are rapidly growing risks,” Yellen posited.
While LFG’s rescue plan is yet to yield any positive results, there are also rumors swirling that some major crypto-focused companies are willing to offer funds to shore up the UST’s dollar price peg.
Do Kwon has promised that “Terra’s return to form will be a sight to behold” and that they are here to stay. Nevertheless, the reputation and trust in UST have already taken a massive hit even if the firm miraculously succeeds to return the stablecoin to $1.