Fear spurred around the market as LUNA took a major hit. From $34.38, the altcoin dropped to a low of $2 within just 24-hours. The third-largest stablecoin TerraUSD [UST] proved to be not so stable as it dropped to $0.50. This further instigated the CEO of Terraform Labs, Do Kwon to address the issue and bring in some respite to the community. Last night, Kwon announced a “recovery plan.” The community grew impatient as Kwon stayed mum for hours while Terra’s native assets were close to demise.
Kwon finally broke his silence through a Twitter thread. Acknowledging the fact that the previous 72 hours were “extremely tough” Kwon was ready to reveal his rescue mission. Explaining the reason behind LUNA’s massive price drop, Kwon said,
The capital that was yearning to exit UST had instigated a major LUNA sell-off. This further accelerated LUNA’s downfall.
Sharing a community proposal pitch, Kwon revealed that the only way to move ahead was to spruce up the amount of LUNA that was being minted every day. He added,
“6/ Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg. There is no way around it.”
This potential increase in minting capacity would in turn allow the system to swiftly absorb UST.
In addition to this, Kwon intends to bring in more exogenous capital to minimize the supply overhang on UST. This would, however, require more research and exploration as it comes at a high cost to both UST as well as LUNA holders.
Anchor Protocol to save the day?
Kwon concluded his Twitter thread by noting how Terra “is one of the most vibrant in the crypto industry.” Calling the latest incident a “short-term stumble” Kwon wanted the industry to know that the LUNAtics wouldn’t be deterred by this setback.
Meanwhile, the Anchor Protocol Community intended to aid in restoring UST’s $1 peg. But why is Anchor getting involved? This DeFi platform carries out the majority of UST borrowing as well as stakes.
The community submitted a proposal that lowers the minimum interest rates to 3.5 percent while the maximum deposit rates would be at 5.5 percent. All of this with an interest rate of 4 percent.
Following this Anchor’s reserve would be temporarily stopped from depleting. The proposal read,
“This should temporarily stop the Anchor reserve from depleting such that TFL will not have to deploy additional UST, which should contribute to stopping the depeg death spiral.”
Is LUNA planning for a comeback or has that ship already sailed?
As Terra tries to fix this, several prominent exchanges across South Korea were alerting their customers to stay wary about LUNA. Upbit as well as Bithumb categorized the altcoin as a “cautionary item.” Any further downfall will likely get the altcoin kicked out of the exchange.
Just yesterday, prominent crypto exchanges like Binance had momentarily halted LUNA withdrawals. Today, Changpeng Zhao decided to take a dig at the stablecoin. He tweeted,
While proposals to save the coins start pouring in, LUNA slumped to a low of $2.18 with a 92.70 percent daily drop, at press time. Not so stable, UST dipped by 51 percent pushing its value to $0.43.