As the Terra stablecoin becomes depegged from the U.S. dollar, the biggest buyer of bitcoin in recent months could become its biggest forced seller.
UST Dollar Peg Collapses
The depegging of the Terra stablecoin (UST) from the US dollar began over the weekend and has intensified today, with Terra currently trading at $0.85. As the situation worsens, many of these market dynamics have been playing out in near real time today, and will very certainly change again over the next 24 hours. Over the weekend, billions of dollars in UST left the high-yielding Anchor Protocol, triggering a full-fledged digital bank run.
YIKES
Terra’s #UST stablecoin has rapidly fallen to $0.98.
Further decline would lead to partial/full liquidation of LFG’s 40k BTC to support the peg. pic.twitter.com/yehn588vTr
UST uses algorithmic minting and burning mechanics to keep the LUNA token's price stable. When UST is off its $1 peg, this strategy creates an arbitrage opportunity. Traders can earn by burning LUNA and creating new UST when UST is priced over $1. When UST falls belo...