ELI5: What happened to UST and why it happened?

[a298b112]

I guess many of you heard the news about UST going down all the way to ~ 0.60 and even Janet Yellen commented on it. So, can someone please explain it why it happened to UST? What is wrong (?) with it?

[mk4]

UST is an algorithmic stablecoin a.k.a. backed by the LUNA token. Hence it's pretty much almost backed by thin air; hence why Luna Foundation Guard had to purchase a good amount of bitcoin to protect the peg if it's the case that there's a bank run.

And yea, it happened:

Peg broke due to UST having a huge bank run, with people selling the UST for other stablecoins (hence pushing down the price of UST). Now for the peg to be restored to $1, Luna Foundation Guard had to liquidate a crap ton of bitcoin on their reserves just to push UST back to $1, further pushing down the downward pressure on BTC.

[bitmover]

Peg broke due to UST having a huge bank run, with people selling the UST for other stablecoins (hence pushing down the price of UST). Now for the peg to be restored to $1, Luna Foundation Guard had to liquidate a crap ton of bitcoin on their reserves just to push UST back to $1, further pushing down the downward pressure on BTC.

And it is still far from 1 $, it is now 0.90

I believe those kinds of events are healthy for the ecosystem. It exposed to everyone that some parts of the DeFi ecosystem are not really safe.

I hope similar projects will be wiped out soon. Anyone holding Luna after this tragedy should be really rethinking the fundamentals of such investment.
In the middle term, bitcoin won't be affected by this event.

[Kemarit]

Peg broke due to UST having a huge bank run, with people selling the UST for other stablecoins (hence pushing down the price of UST). Now for the peg to be restored to $1, Luna Foundation Guard had to liquidate a crap ton of bitcoin on their reserves just to push UST back to $1, further pushing down the downward pressure on BTC.

And it is still far from 1 $, it is now 0.90

I believe those kinds of events are healthy for the ecosystem. It exposed to everyone that some parts of the DeFi ecosystem are not really safe.

I hope similar projects will be wiped out soon. Anyone holding Luna after this tragedy should be really rethinking the fundamentals of such investment.
In the middle term, bitcoin won't be affected by this event.

And when we thought that Luna putting money in Bitcoin was a good idea, it really back fire on them and has affected the price of BTC.

I recalled one thread about it and now it come to realization the Terra Luna Foundation has made a big mistake on trying to hedge it's billions to BTC.

But yeah, I agree, this might be a short term effect, but since we are in a bearish cycle now, it is just magnified on the massive effect to Bitcoin market.

[jerry0]

Am confused about this whole situation here.  Haven't many stablecoins dropped below their peg?  What was the big thing about TERRA USD?  Was it because it dropped so much?  The same thing happened with waves and USDN and it dropped similar to TERRA USD and then went back up to 90% + etc.  How come there wasn't that much talk about USDN compared to TERRA USD?



Also, wasn't it pretty obvious that TERRA USD was eventually going to go back to its peg of a dollar?  When i saw it went to 0.70, i thought... isn't it a no brainer to buy TERRA USD because it eventually will get back to at least 0.95 or so?  Someone did mention the upside was you make max 30 percent but you could lose the whole amount.  But isn't this little risk?



Also i read tons of people on twitter talking about this such as they lost 30% of their life savings and many were immediately selling their TERRA USD correct so they wouldn't lose more?  What i don't understand here is... why are these people so freaked out?  Did they literally had all their live savings in TERRA USD the stablecoin?  But what about Terra coin?  isn't it obvious TERRA USD stablecoin was going to go back to its peg or close to it later on?



it was mentioned they sold a ton of btc in order to try to get TERRA USD back to its peg.  So if they did that, isn't it obvious worrying about TERRA USD Peg isn't that big of a concern?  Still confused why so many people were freaking out over this.  So why do many people have so much in TERRA USD then?  Heard about anchor staking and they give like 19.5% but is that owning TERRA USD the stablecoin... and earning that amount of interest similar to like how people own GUSD and earn GUSD on gemini?  if that is the case, then i would understand why so many people would own a stablecoin like TERRA USD.  Or is that anchor interest just having TERRA coin and not stable coin?  Because you would earn interest but its not stablecoin interest.



Even saw on the terra reddit, there was a suicide hotline link shown.  i am still confused why so many people were freaking out?  Again i don't know much about crypto terms such as these sites liquidating shares and things like that but when it was mentioned they were going to sell billion dollars worth of btc to get ust back to its peg, why are people then concerned?  its not like hey ust is keep going down and the company is doing nothing at all to fix the issue? 



Also saw someone on twitter mention, if terra luna goes down in price, btc and all the other coins will go down but that is the only way to get TERRA USD pegged back.  Can someone explain this or why?  They then said if terra luna goes up in price, then the stablecoin TERRA USD would drop so it's a lose lose situation.  is that statement true and can others elaborate on this?  So if you own both TERRA USD and terra luna, what do you want to happen?  Don't you want terra luna to drop a lot so the TERRA USD to peg back to a dollar... then when bull market again, terra luna go up?  Could both TERRA USD and terra go to zero? 



So let say TERRA USD went to 0.  What would have happened?  All the cryptos would have dropped even more correct?  But are there people that put a ton of their savings in UST or Luna?  The way you see people responses on twitter on this, you feel as if all their savings was on it.  Now would this situation been the same or worst if say this happened to GUSD or USDT or USDC?  im aware UST is a top ten crypto but i couldn't believe why there was so much talk about this.  Were people that owned LUNA much more concerned than those that owned UST?  Assuming one person owned USD while another owned UST.  if you owned UST... the stablecoin should eventually get back to its peg.  LUNA... after a while should go back to its normal prices when bull market right?  So why so much talk about this?

[Blowon]

Peg broke due to UST having a huge bank run, with people selling the UST for other stablecoins (hence pushing down the price of UST). Now for the peg to be restored to $1, Luna Foundation Guard had to liquidate a crap ton of bitcoin on their reserves just to push UST back to $1, further pushing down the downward pressure on BTC.

And it is still far from 1 $, it is now 0.90

I believe those kinds of events are healthy for the ecosystem. It exposed to everyone that some parts of the DeFi ecosystem are not really safe.

I hope similar projects will be wiped out soon. Anyone holding Luna after this tragedy should be really rethinking the fundamentals of such investment.
In the middle term, bitcoin won't be affected by this event.

DeFi isn't perfect so far, and needs to be developed up to that point. Especially in the existing security, they are far from safe like what happened with UST, everyone is afraid of the stable existence of the coin because of that. I think they should perfect their coin stable program ecosystem first before starting DeFi, doing that at the same time makes them unable to maintain one of them so they have to suffer losses like this.

[inanilujimi]

Wtf ust now $0.5 and luna $5.
What is really happening??
why does this panic continue?
unfortunately because of this the crypto market has almost all experienced a decline.
I feel that there is no future for the terra ecosystem.

[meanwords]

Wtf ust now $0.5 and luna $5.
What is really happening??
why does this panic continue?
unfortunately because of this the crypto market has almost all experienced a decline.
I feel that there is no future for the terra ecosystem.

UST isn't backed by anything hence the price right now. Since they sold their Bitcoin (Their only asset that supports UST & LUNA), it's only a matter of time before it goes to $0.

Kinda feel bad for investors who thought their assets are safe in UST since they branded it as "Stablecoin", which you can see it's not.

[Nivia1st]

I guess many of you heard the news about UST going down all the way to ~ 0.60 and even Janet Yellen commented on it. So, can someone please explain it why it happened to UST? What is wrong (?) with it?

the beginning of the problem was because bitcoin crashed. UST is an algorithmic stablecoin backed by the terra(LUNA). when bitcoin crash, luna also followed and this also impacted UST. to keep it stable they use Luna to backed ust. but the scenario didn't go well, ust kept falling and luna couldn't hold it. as a result UST and luna fell very deep.

[tvplus006]

...UST isn't backed by anything hence the price right now. Since they sold their Bitcoin (Their only asset that supports UST & LUNA), it's only a matter of time before it goes to $0.

Kinda feel bad for investors who thought their assets are safe in UST since they branded it as "Stablecoin", which you can see it's not.

Yes, the problem inherent in the algorithmic stablecoin has now become obvious to everyone. But I still remain confident that the UST problem will be solved in the near future and the value of the stablecoin will return to the dollar, as the Luna Foundation Guard has plans to restore the value of the Terra USD.

[Imran232]

<.................>

Before saying what exactly happened, first of all, we need to understand how this stable coin works. Despite the fact that we all know that one stable coin equals one US dollar. So, in crypto, any stable coin requires a lot of funds to keep its price stable. Who finances the stable coin in order to keep the price stable?
Now comes to the question of why this happened to them. Well, there is no exact reason, but people are speculating that maybe the team has done something wrong with the fund. As a result, Luna no longer has enough funds to fund Ust Coin in order to keep its price stable. which is likely trustworthy. Because, as we can see from coinmarketcap, the luna valuation is lower than the ust valuation. So now if Luna dumps their price to zero, they can't even stabilize the price of UST. So that is the reason why Luna should have more value than usual. So now Luna needs at least 30B to get back on their game. But I don't think it is possible to gain trust from users again. Let's see what happens.
 

[a298b112]

Yeah, since yesterday I've done some reading and watching :-)
So, overall, I do have some understanding of how it was supposed to work and how it failed. And I think it failed so bad that I don't have any confidence that UST and LUNA can recover. Just the amount of money Luna Foundation is looking for to borrow is so huge, and with the reputation they've gained in the last couple of days, I don't think they will be able to convince anyone to give them that much money. Well, again, let's see what happens next.

[tvplus006]

...But I don't think it is possible to gain trust from users again. Let's see what happens.

It turns out that this is the second unsuccessful attempt by Do Kwon, the CEO of Terra creator Terraform Labs, to create an algorithmic stablecoin: https://www.coindesk.com/tech/2022/05/11/usts-do-kwon-was-behind-earlier-failed-stablecoin-ex-terra-colleagues-say/ In 2020, Basic Cash, created on the Ethereum blockchain, turned out to be such a failed algorithmic stablecoin. It is obvious that this information will also be available to investors addressed by Do Kwan.

[roslinpl]

Actually all the coin was dump to the bottom.UST price was going down then the expected one.Because the price of all the crypto currency was reduced,but I don’t know why the topic was started only for the UST.The price of coin which was increased is only the USDT.Because the buying of new crypto currency by the investors was happening only with the USDT.USDT only had huge demand for now.

[justdimin]

I guess many of you heard the news about UST going down all the way to ~ 0.60 and even Janet Yellen commented on it. So, can someone please explain it why it happened to UST? What is wrong (?) with it?

the beginning of the problem was because bitcoin crashed. UST is an algorithmic stablecoin backed by the terra(LUNA). when bitcoin crash, luna also followed and this also impacted UST. to keep it stable they use Luna to backed ust. but the scenario didn't go well, ust kept falling and luna couldn't hold it. as a result UST and luna fell very deep.

I would guess that the fact that some manipulators caused it to go down was the main reason. I mean think about it, there were some people who crashed Luna so that Luna team would have to recover and when that happened they used their BTC to short it, because they knew that Luna would have to sell btc and drop the price, and they helped and got the money back from the shorting.

Since, there is no way of recovering without that, Luna kept going for a few days and those whales kept profiting that way and it never really recovered because of it. Luna team is now looking for alternative methods, but whales got the money they wanted out of this.

[Captain Corporate]

I agree that it is not a great situation to be in if you still holding it. However, as we have seen from the system "working", bounced over 75 cents right now. This is the same thing that was under 30 cents today, and it reached 33 cents again, many places had it at around 30 cents multiple times today. So that should tell you how it recovered using their method and showed that it actually works. Sure it's not back to 1 dollar yet, but when all of this pressure is off, it will not be a big deal to get there either. I am guessing that the best thing to do right now would be to wait for it to get there, and I am %100 sure that it will get to 1 dollars soon.

[takngantuk]

UST is an algorithmic stablecoin a.k.a. backed by the LUNA token. Hence it's pretty much almost backed by thin air; hence why Luna Foundation Guard had to purchase a good amount of bitcoin to protect the peg if it's the case that there's a bank run.

And yea, it happened:

Peg broke due to UST having a huge bank run, with people selling the UST for other stablecoins (hence pushing down the price of UST). Now for the peg to be restored to $1, Luna Foundation Guard had to liquidate a crap ton of bitcoin on their reserves just to push UST back to $1, further pushing down the downward pressure on BTC.

unfortunately the way they did it didn't work. UST didn't recover, bitcoin crashed, and LUNA died. it's over, Luna and UST can't be helped anymore. this project is dead. I wouldn't be surprised if in the next few days there will be a lot of exchanges delisting Luna from their platform.

[Innerpumper]

I guess many of you heard the news about UST going down all the way to ~ 0.60 and even Janet Yellen commented on it. So, can someone please explain it why it happened to UST? What is wrong (?) with it?

I still hear it's not clear, it's rumored that someone intentionally triggered the bitcoin sell which is a weakness of UST itself. UST is backed by bitcoin to be coin stable making it its liquidity. When bitcoin went down, the UST team liquidated bitcoin causing UST to drop and it also affected their other coin LUNA. I got this information from various groups but no valid sources yet, at least don't follow the LUNA UST trend for a while, they are quite dangerous to follow.

[batang_bitcoin]

The Terra foundation said they're trying to back it up with bitcoin, right? So basically as bitcoin dumps, there have been a lot of sold bitcoins in the market and you can think of it where it came from. That contributed to the market plummet which doesn't have any sign of stopping anytime soon.
I highly doubt that there's still a way for them to recover from this disaster, that's billions of dollars that has been out of their circulation unless they really have a huge amount of reserve for real.

[Leo]

Increase in supply of luna, right now luna has 2+ billion units in circulation, the owner is trying his possible best to bring it back to life but I doubt it will go up again, binance had also said that they will delist it in future trading.
You guys should leave Luna to the fate of the market... if it will recover only time will tell. For now go and scalp and use the money to invest in top coins like BTC/USDT