Fallout from UST depeg continues as LUNA drops 98% against ATH

The crisis that began two days ago with the depegging of UST is nowhere near the end.

Full moon rising over a winter landscape

Apocalyptic despair blends with resilience and glimmers of hope as the depegging of UST, Terra’s algorithmic stablecoin, continues to send shock waves across the crypto world. UST started depegging over the weekend, pushing the Luna Foundation Guard to empty all of its Bitcoin reserves at a loss of $700m to attempt to defend the peg.

The LFG’s $3.5bn worth of Bitcoin was not enough to counter the spiraling selloff. At the time of writing, LUNA fell 98.7% against its April all-time high of $119. It now ranks #70 on CoinGecko, down from #8 on May 1. Meanwhile, UST is at $0.34, making yesterday’s spooky lows of $0.67 look like a prelude to the real trouble.

Chart of LUNA price over the last 24 hours, dropping 98%
LUNA price chart over the last 24 hours. Source: CoinGecko

Twitter filled up with news of people who had put their life savings into LUNA or UST and found themselves in a desperate situation. At least one person is believed to have taken their life. Major crypto personalities, including DeFi Edge, Crypto Zombie, and Crypto Harry have called for unity and resilience.

Shady Sun?

Speculation is mounting that the attack, which the community has largely accepted as the most convincing theory on the source of the depeg, could have been orchestrated by Justin Sun, co-founder of TRON DAO.

In late April, TRON confirmed they were creating a new stablecoin, USDD, which some denounced as a copy of UST. At the time, Terra CEO Do Kwon tweeted that he had no issues with TRON’s idea, arguing that “the more blockchains issue their own sovereign stablecoins,” the better the position of existing stablecoins like UST. Last week, TRON’s USDD launched on CoinGecko.

Then, a cryptic tweet Justin Sun published a few days before UST depegged got the Terra community thinking he may have been behind the attack, which reportedly began with a mass purchase of UST.

Sun himself has not publicly responded to these accusations. Instead, he hinted at the possibility of TRX falling victim to an attack similar to that mounted against LUNA. Then again, he also tweeted that USDD is "very stable in today's market volatility."

Kwon returns

Meanwhile, Do Kwon has broken his silence to issue a statement, acknowledging the pain that UST and LUNA holders have been experiencing. Between the lines, Kwon conceded that restoring the peg could take a while longer, but he also reiterated that Terra is “oriented around a long-term time horizon” and would be a “sight to behold” once fixed.

Kwon endorsed a community proposal to quadruple LUNA minting capacity in order to boost the absorption of UST, which Kwon believes will accelerate the return of the peg. According to the proposal, the efforts made by the Luna Foundation Guard to “engage with trading firms” and buy more Bitcoin were insufficient in the face of an “extreme situation like this.”

As of this writing, the proposal had a 65% approval rate with over 111 million “yes” votes. 35% of voters have abstained, and only four voted “no with veto,” an option that would need to be chosen by at least 33.4% to override support. It’s unclear when the solution could be deployed. The community has been discussing other ideas as well, including lowering the yield on Anchor to 3.5%.