Bitcoin is desperately trying to cling on above 30k, while almost every other coin or token has suffered double digit losses over the week. But today all of the talk is of terror and ust, now its not so long ago, that terror was the darling of the crypto market, buying up boatloads of btc to create a reserve for its ust stablecoin with the market as a whole buckling. Under the pressure of a bleak macro outlook, the luna foundation guards buying spree was a welcome bit of bullish. News. Ust itself has soared to become the largest decentralized stable on the market and dokuan terras always entertaining founder, was posting about killing dye luna pumped to an all time high of almost 120 dollars, and everything was just awesome and then yesterday happened. Ust didnt just part from its peg. It divorced the peg moved out of the house. They shared deleted. The pegs number blocked it on twitter, bought a motorbike and moved to another continent where it hooked up with a peg, almost half its age and all its friends had to stage an intervention. Luna, meanwhile, dropped off the north face of the eiger and out of the top 10 and is now receiving urgent medical attention. It has, to put it mildly, not been pretty and it aint done yet. So what happened? How was such a disaster possible, and what does it all mean well before we get into that lets quickly revisit how exactly ust works now youll remember that terror is a platform that makes it possible to mint decentralized, stable coins using its native lunar token, as collateral Ust, its us dollar, stable coin, is by far the most popular of these, and there were around 18 billion of them in circulation until very recently, so terra uses a mint and burn mechanism to create ust and maintain its parity with the dollar.

So lets say you wanted to mint some ust to do this. You have to burn some luna lets pretend that one luna costs 10 thats not so hard to imagine anymore. Is it burning this 10 bucks of luna would mint 10 ust, and now this also works. The other way round, you could burn those 10 ust and create one luna and its this mechanism that enables ust to theoretically maintain its peg now lets, say: ust soars above its peg to trade at 1.50. Anyone holding luna can swoop in burn that luna to create ust and get 50 extra ust as profit as more lunar holders. Do this the amount of ust in circulation increases, this increase in supply pulls ust back towards its one dollar peg and of course the reverse is also true, so lets say: ust slips below its peg and trades at 50 cents again. This is no longer that hard to imagine anyone holding that ust can burn it to mint luna theyll double their money. In doing so, this means ust is being taken out of circulation and so the price climbs back up towards its peg. Now this clever setup is very different to centralized stable coins like usdt and usdc. These are supposedly backed by assets like actual dollars in a bank account and government or commercial debt. I say supposedly because well in usdts case, we cant be sure because tether the company, which issues it wont, submit to a full audit of its reserves, and many worry that tether is simply printing usdt out of thin air.

So this and the fact that the issuer of a centralized stablecoin can restrict a holders access to the coins they hold, and this has happened in the past – has made many wary of using them. Ust is seen as a decentralized and safer alternative. At least it was terra had also made moves to buttress usdt against any sudden market downturn by buying around 1.5 billion dollars worth of btc to create that reserve. So why did ust plunge off its peg and down to 66 cents at one point, why is it still only in the low 90s, as i shoot this and what can be done well, theres a lot of speculation flying around, but the simplest explanation seems to be That the most recent drop in the crypto market is the most likely culprit as btc and the rest of the market. Dipped luna did too remember that the macro landscape at the moment is really as bad as its been in a long time now. Holders of ust saw this and became worried that its peg might not hold so sold their ust just in case this caused more luna to be minted, which further pushed lunas price down. This in turn, caused more ust to be sold a death spiral, in other words, the lunar foundation guard the buyer of all that btc to back ust was forced to sell that btc to try and refloat ust, resulting in more cell pressure on btc and hence the Crypto market as a whole, an already grim situation, was made a lot worse.

So, as i shoot this, it appears that the venture capitalists that invested big time in luna are now having to pump in more liquidity to try and keep the show on the road. The likes of three arrows capital and jump still reeling from the wormhole disaster in early february are having to stump up some serious liquidity to try and avert further disaster. So this whole mess is well its still playing out and ust has still not regained its peg. My guess is that it will because theres simply too much at stake if it doesnt and the likes of the aforementioned vcs have deep enough pockets to plug the hole, take their l and regain confidence in the peg. However, tomorrows cpi numbers are galloping towards us and many fear that if they are bad and theres a more than decent chance that they will be, then the markets will throw their toys out of the pram once more more volatility, more long, dark nights of the soul.