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UST is stablecoin this means it’s backed by traditional assets, so the price is equivalent to the traditional asset all the time, no matter how much demand will be, and if it’s showing small fluctuations the price of this coin will stay the same. In a desperate attempt to halt the carnage, the Lunar Foundation Guard , which had purchased $1.5 billion worth of BTC the week prior, began to sell off its reserves of $2.4 billion. It was too little, too late, as confidence in the stablecoin evaporated, LUNA and UST became a painful memory leaving many investors out of pocket. Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day.


When UST began to trade above its $1 peg, users were incentivized to burn LUNA and mint UST and vice versa. In other words, as demand for UST rose, so did the price of Terra’s LUNA token. With a market cap of over $16 billion before things went horribly wrong, UST had become the most widely popular decentralized stablecoin. The key to investors’ federal securities law Forex claims against the venture capital firms is the U.S. Supreme Court’s 2019 ruling in Lorenzo v. Securities and Exchange Commission. In that case, as I’ve reported, the Supreme Court held that investment banker Francis Lorenzo participated in a fraudulent securities scheme when he knowingly emailed false information about a client’s debt offering to potential investors.

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Those stablecoins supported the entire crypto ecosystem, which was valued at approximately $1.75 trillion. Created by Terraform Labs in 2018 and co-founded by South Korean crypto entrepreneur Do Kwon. Tether , one of the most important stablecoin cryptocurrencies, is pegged to and backed by the U.S. dollar. Instead, UST — or “Forex” — is created by destroying a sister token, known as luna, using smart contracts, lines of code written into the blockchain. Now, the Luna Foundation Guard, an organization created by Terra’s inventor Do Kwon, says it will lend out $750 million in bitcoin to trading firms to hold UST’s price peg. But that’s done little to assuage investors’ concerns about the implications for bitcoin.


Rather than depositing $1 with a centralized party to receive 1 unit of a custodial stablecoin from the stablecoin issuer, the user can, for example, deposit $2 worth of ETH in the smart contract and be automatically issued 1 unit of stablecoin. If the price of ETH falls below a certain liquidation threshold, the smart contracts are programmed to automatically liquidate the ETH that is custodied to ensure there is always sufficient collateral to cover the liability. The most prominent example of this category is DAI, which is issued by the Ethereum-based MakerDAO protocol. If you’ll recall,’s value collapsed in May, causing massive losses for investors who trusted its classification as a stablecoin that’s supposed to maintain its value of $1 per coin. Unlike other stablecoins backed by real-world assets, though, TerraUSD is an “algorithmic” stablecoin that’s not backed by fiat currency. Instead, it’s backed by a cryptocurrency called Luna and has a mechanism in place to restore its value to $1 if it ever falls.

Potential Algorithmic Stablecoin Ban

While Terra may turn the corner and recover, this situation is a stark reminder of why it’s important to invest carefully and understand the risks when making any new investments. If you put $1 under your mattress, you know you’ll get $1 back when you go looking for it. When you deposit $1 with a bank, you can be pretty sure you’ll get it back even if they do more with it than lock it in a vault, thanks to regulations developed over centuries. A branch of cryptocurrencies called stablecoins has been trying to replicate that kind of dependability in totally new ways. Some have used the equivalent of a digital vault to back up their promises. The biggest of those, , also known as UST, and its sister token Luna have melted down in spectacular fashion, sending their prices to near zero and their market values plunging to a shadow of the combined $60 billion they once commanded. Its plunge has raised concerns that go beyond its narrow slice of the stablecoin world.

  • If you put $1 under your mattress, you know you’ll get $1 back when you go looking for it.
  • The USTC, LUNA and LUNC price are in the red today amid breaking news that a House stablecoin bill could see coins like TerraUSD banned for two years.
  • This, in turn, pegs the values of all of the other Terra stablecoins, because users are always permitted to exchange TerraUSD and the rest for TerraSDR at the effective market exchange rate between the underlying currencies and SDR.
  • Investors whose lives were ruined by the collapse of the TerraUSD stablecoin have started speaking about their experiences.

The same applies vice versa — new luna is minted by burning UST and other algorithmic stablecoins that Terra supports. Based on regulatory precedent, areas of focus may include market-facing statements from stablecoin issuers and the means by which issuers maintain the market values of their stablecoins and the related reserves. Many of them reported learning about crypto from YouTube, and said they believed in its safety because it was traded on popular exchanges like Binance.

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