UST token fell 40% off its $1 peg as LUNA crashed 50%

The TerraUSD (UST), token fell to $0.61 Monday after it massively depegged from $1. It was amidst the worst crypto market sell-off in 2022.

UST has since been able to move back up under a raft reestablishment measures by Luna Foundation Guard, which is currently responsible for the UST treasury.

As the algorithmic token fell, the LFG deployed its $2.2 billion BTC reserves – a move likely to have helped stem the rot- with BTC price falling briefly below $30k and LUNA nosediving more than 50% to around $28.

UST is vulnerable because LUNA trades at 50% less in 24 hours

Yield App CEO and founder Tim Frost said that the crash demonstrates the vulnerability of decentralized stablecoins.

“A brutal start to the week for the entire cryptocurrency market has brought one of its latest stars to its knees: UST. Just when we thought a decentralized, algorithmic stable coin had finally made the grade and proved all skeptics wrong, it slips 40% below its USD peg,” Frost told CoinJournal via email.

UST is currently trading at $0.90. BTC has seen a slight rebound above $31.5k. Terra (LUNA), however, pares some losses to trade around $30. However, the LUNA/USD pair remains at 50%.

Frost believes fresh selling around the DeFi token could mean LFG’s measures are “unlikely this is going to prove a long-term solution.” More inbound pressure on UST is thus possible.

“More importantly, this underlines how vulnerable decentralized stablecoins that rely on theoretical pegs instead of hard cash are in a good old-fashioned bank run. There is little anybody can do when investors start heading for the door en masse other than join the stampede and accept a huge loss,” the Yield App chief added.

On the overall outlook of the crypto market, Frost says “there is now little doubt we are in the midst of the most aggressive bear market since 2018.”