Is TerraUSD (UST) Dead?

Terra is a blockchain protocol on the Cosmos network that hopes to specialize in stablecoin transactions. For several years it relied on others’ stablecoins to power the protocol. However, in 2020 they released TerraUSD (UST). This stablecoin was supposed to change the way the tokens are used. However, in May 2022 the system fell apart seemingly overnight. After the destabilization of the stablecoin, many are wondering what the future holds for UST. Is the project dead, or is there room for a recovery?

Why Is TerraUSD (UST) Down?

TerraUSD is a stablecoin that is supposed to always be worth $1.00. However, most stablecoins are directly pegged to the USD or other fiat currency. UST is not pegged to a fiat currency, but is rather backed by LUNA, Terra’s native currency. To keep the price stable, the developers of UST deployed an algorithm that would burn or mint UST and LUNA to stablize the price of UST. For example, if the price of UST dropped below $1.00, then LUNA would be minted and UST burned. This would increase the amount of LUNA backing per UST, thus raising the price of UST.

This is exactly what happened in the case of UST. A couple large withdrawals of UST lowered the price slightly below $1.00. Others saw this and began to sell, thinking that there was a risk of a further drop. As more people began to sell, LUNA was getting minted and UST burned at extremely high rates. To make matters worse, the Terra developers included a clause in the code that limited the amount of UST that could be burned each day. Once this limit was reached, there was nothing left for the algorithm to use to keep the price stable. This caused the price of the token to freefall, going from $1.00 to under $0.30 in a matter of days.

A couple days after the initial crash, Terra began searching for ways to bring the price back up to $1.00. Some of the plans included increasing the LUNA supply to increase backing for UST, as well as pegging the currency to different stablecoins. However, none of these plans worked. 

At the same time, the price of LUNA fell from $80 to $0.0001 in less than a week. This was due to a massive selloff and inflated supply. This sudden change in price left Terra vulnerable to governance attacks on the blockchain. Essentially, a group could control more than 50% of the chain for a comparatively small price. Because of this risk, Terra decided to completely shut down their protocol. 

Binance CEO Changpeng Zhao said that he was “very disappointed with how this UST/LUNA situation was handled.”

As of June of 2022, the value of UST has fallen well below a cent, effectively trading for $0.

TerraUSD (UST) Price Movements

Since the launch of UST in late 2020, the price has remained extremely close to $1.00. It veered a bit away from time to time, but it was overall a very consistent asset that held real use cases. Because of this past stability, the extreme fall in price was a bit surprising. A few large, yet fairly ordinary, transactions sent the token in a downward spiral. It almost seems like this could have happened at any time. 

After the price began to fall the night of May 9th, you can see the algorithm begin to work as the price picks back up. However, the early morning of May 11th saw the price begin to fall extremely fast. This is presumably when the algorithm has reached its limits and was left with no other options than to just watch the price bottom out. On May 12th, the protocol was shut down and the price began to stabilize at around $0.15. However, the protocol was not able to maintain that level of stability into the summer of 2022 and only time will tell if it can recover.

Cryptocurrency Market Cycle

One way the cryptocurrency market can be measured is by comparing Bitcoin to other tokens. If altcoins, or any tokens that are not Bitcoin, are outperforming Bitcoin, then it is deemed “altcoin season.” As of right now, we are not in an altcoin season, as Bitcoin is outperforming almost all other ,major cryptocurrencies in recent months. 

While Bitcoin is outperforming other tokens, this does not mean that it is doing well in terms of price. The crypto markets have been suffering for some time, with major tokens down upwards of 50% in the last few months.

Where to Buy TerraUSD (UST)

While a variety of crypto trading platforms that support UST have suspended trading, there are still a few places to purchase the asset. FTX and Gemini are among the best trading platforms that still offer the token. These exchanges are known for their security, low fees, and overall ease of use.

To get started trading, register using an email and password. You will have to provide some basic personal information to verify your account. Then you can connect your bank account and begin trading.

So, Is TerraUSD (UST) Dead?

As of right now, Terra is very close to being dead. Their own stablecoin, something that they were supposed to specialize in, was unable to remain stable. The price fell by over 80% in less than a week, and their native token fell by over 99.99% in the same time frame. The damage has been done, and Terra is scrambling for a solution. 

While the situation for Terra is bleak, a comeback is not out of the question. If they can regain confidence from investors and prove that their algorithm will work, they may be able to secure the investment needed to restore the price of UST. However, this is a monumental task and would require a lot of luck in order for it to succeed. 

Conversely, there is a possibility that Terra closes their doors for good. This would bring a definite end to both UST and LUNA. 

While it is impossible to say exactly what will happen with UST and Terra, there will certainly be some big changes in the future. These changes will ultimately spell out the coming times for the protocol.

Frequently Asked Question