Wednesday afternoon Scott Stuart, CEO of Kava Labs, the organization behind Kava, posted a Twitter thread outlining steps the Kava community and platform will be taking in regards to TerraUSD (UST) losing it's $1 peg.
How was Kava affected?
Kava, being a Cosmos-based project, integrated UST into various parts of its lending platform. Kava held a liquidity pool between USDX (Kava's integrated stablecoin) and UST.
Kava's platform held UST to a fixed price of $1.00 even after UST started to fall on other platforms. It kept this fixed price even throughout the freefall today and yesterday.
Naturally, when UST lost it's $1 peg, USDX and other DeFi elements on the platform started to react. Since UST was still pegged at $1 on the platform, it devalued many parts of the platform .Kava (KAVA), the governance token for the platform, fell an additional 30% to $1.85, a price not seen since 2020. Other tokens, including Kava Swap (SWP), and Kava Lend (HARD) dropped between 30-40% in over a 24-hour period as well.
What will change?
As of today, Kava no longer has UST permanently pegged at $1. The price will now feed from the market price. This has unfortunately caused some users of the DeFi platform to have positions liquidated according to Scott's tweet.
Scott goes on to mention hope that USDX and other assets on the platform will recover in price over the next few weeks. Having UST's price better represent the market should begin to balance things out.
To view the full Twitter thread, check out this link: https://twitter.com/Scott_Stuart_/status/1524483997845233665?cxt=HHwWgoCp1c6Hh6gqAAAA
Originally Posted on Crypto Crossing