LUNA is a cryptocurrency mostly known by its stablecoin UST, this stablecoin is pegged to the USD by burning and minting LUNA as needed. One of the things that made UST so popoluar is the almost 20% APY this stablecoin grants to its users on Anchor.
On the last days a major problem surged as UST started to slowly losing its peg to the USD and going below the 1$ mark. Although it's normal that these type of coins have some swings it's not normal that these swings are so big. This crash was majorly due to the market crash, the price of LUNA dumped so much that it influenced the burning and minting mechanism of UST.
LUNA recently bought billions of dollars in Bitcoin to serve as backup if this type of situation occurs, the Bitcoin can be added as collateral to back the price of UST. Although this situation was prepared for, it seems to not be working for now. UST is sitting right noe at 0.91$ far from 1$, but it already recovered from a bottom of 0.75$ that must have scared a lot of users. LUNA is sitting at around 32,5$, it's down 45% in one month. LUNA really felt the tremor of UST being unstable, being UST the major player on the TERRA blockchain and the plus factor of its usability.
UST might be picked up by arbitrage trades from users who want to make a profit from a depegged stablecoin, because they believe that it will peg again and make profits from them. What could happen also is its users losing their trust on the mechanism and losing trust on UST. This situation could be the fall of LUNA and its blockchain.
The fact that the APY is very high was already discussed multiple times through time as a factor for this to happen, the amount of UST being minted could be to high and a market crash could cause exactly what happened. LUNA is being watched very carefull now amd the problem must be delt quickly if LUNA doesn't want to lose its credibility.
In a time that this type of stablecoins are becoming popular, this incident might warn users for the danger of it. Tron launched USDD and promises 30% APY on a coin that resembles in every way UST, will this happen to in the future with USDD? Are this type of coins really safe?
Best Regards,
Cryptopeach