![]() ![]() Allow the arbitrage mechanism to continue.Subsequently, there was a bank run on Anchor, with users rushing to pull out their funds and swap out of UST.Īlgorithmic stablecoin UST de-pegged Goldman Sachs Global Investment Research, CoingeckoĪs this reflexive cycle played out, it seemed like the Terra community had two options: This was followed by a large $350M sale of UST for USDC on Curve, by a supposed “attacker”, that caused significant imbalance between the UST (85%) and 3CRV(15%) in the pool. It was catalyzed by the withdrawal of $150M UST from the Curve Wormhole pool by Terraform labs to prepare for the 4pool launch. The LFG bought over $3 billion of Bitcoin BTC, and had plans to eventually get that to $10 billion. Terraform Labs also created the Luna Foundation Guard (LFG), a non-profit foundation with the mandate of defending the UST peg. ![]() At its peak, UST had over $18B in circulating supply and Anchor had over $15B in Total Value Locked (TVL). This increased the demand for UST, as users rushed to capture the elevated yields. It implemented this through a savings protocol called Anchor which offered 20% interest on UST. However to gain adoption for UST in the short term, it incentivized UST holders with yield. Terra’s longterm goal was to build a thriving ecosystem of financial applications, with real-world payment integrations. This utility was achieved through the Anchor protocol. Additionally, if the stablecoin has utility that others don’t, that would increase its adoption. For one, the ability to hold value in dollars without a centralized entity gatekeeping the system is a strong inventive for some. Why would anyone hold an algorithmic stablecoin, that is clearly riskier than holding one backed by actual US dollars? For a few reasons. Clearly, as long as there is some bid for LUNA, i.e it has a non-zero price, 1 UST should always be. ![]()
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