Terraform Labs president Do Kwon has presented a plan to restore the price of the algorithmic stablecoin UST. Against this background, the LUNA cryptocurrency broke $1.

At the time of writing, the UST rate hovers around $0.5. It’s down 46% in the last 24 hours (CoinGecko).

“The Stability Mechanism is absorbing the UST supply (more than 10% of the total supply), but absorbing this amount of stablecoins has increased network swapping by up to 40% and the price of LUNA has dropped sharply,” Kwon said. Said.

According to him, a necessary step before taking further action would be to accept the offer of UST holders wishing to get rid of the asset.

The plan is to accelerate the release of LUNA. According to the mechanism, 1 UST must be available for exchange for $1 on LUNA at any time. According to Kwon, this will “allow the system to absorb the UST faster.”

“Of course, there will be significant costs to UST and LUNA owners, but we will continue to explore various opportunities to attract external capital to the ecosystem and reduce UST’s excess supply,” he added.

After the stablecoin’s recovery, Kwon promised to use a collateralized mechanism.

Against the backdrop of the plan’s release, LUNA offerings fell below $1. For a short time, the price was around $0.8, at the time of writing the rate has corrected above $2 (Binance). According to CoinGecko, the asset has lost 97.5% in the last 24 hours.

The model of protecting the UST parity with the dollar is largely based on arbitrageurs. If the price of a stablecoin drops below $1, traders can buy it and make a profit by exchanging it for $1 on LUNA.

The demand for the target asset is necessary for the mechanism to work. In the case of UST, such a platform is the largest protocol of the Terra ecosystem – Anchor. Against the background of the collapse of stablecoin and LUNA, the price of the ANC token has dropped 71.3% in the past day.

The ANC price collapsed due to the loss of trust in UST and the Terra ecosystem as a whole as a result of the loss of the stablecoin stabilizer. [к доллару]said Eden Au, director of research at The Block Research.

Several South Korean crypto exchanges reacted to the sharp drop in the price of LUNA. Big 4 member Coinone suspended asset trading, while Korbit and Bithumb issued warnings to investors.

According to Messari analysts, the first “falling domino” in the UST state was the Luna Foundation Guard (LFG) purchase of 37,863 BTC on May 5 for a total of ~1.5 billion dollars. The transaction was carried out over the counter, with Genesis Global Trading and Three Arrows Capital brokered.

“Saturday [7 мая] It marked the beginning of the phase of splitting the UST to the dollar. Binance suffered a slight depreciation of 25 basis points, presumably as Three Arrows Capital and Genesis Global Trading dumped their USTs from LFG.

Analysts noted that with such a supply outflow “there will be pressure at critical points of the fixation, particularly Curve Finance.”

“The large and sudden supply of UST, combined with a wider market sell-off, put reflex selling pressure on the LUNA which resulted in the loss of the stabilizer. [к доллару]”, — added to Messari.

On May 11, a Twitter user drew attention to a letter that asset manager Arca wrote to investors that was allegedly written before May 11. In it, the company announced a recent investment in LUNA.

“LUNA has been and continues to be a key position in our digital asset fund. UST is our main stablecoin that we continue to use in the Digital Return Fund,” said Rein Steinberg, Arca CEO.

According to him, over the weekend, analysts conducted a study and came to the conclusion that the UST should recover. On Monday, May 9, the firm’s risk and investment board decided to continue with this view.

“We firmly believe that course support mechanisms are working as planned and are able to withstand periods of extreme pressure,” the letter states.

Earlier, sources from The Block reported plans to raise $1 billion to offset LFG’s stablecoin rate. The attempt “failed,” according to broadcast analyst Miki Honkasalo.

Recall that in a recent ForkLog special, he described how Anchor problems could crash the Terra economy and cryptocurrency market.