If you haven’t heard, in the past few days, the stablecoin UST had depegged and is undergoing a death spiral. In the chaos, it had brought down the price of LUNA from ~$87 to $0.26 at the point of writing and dragged down the entire crypto markets.
Although the current bear market isn’t entirely due to the death spiral of UST (inflation has a hand in it too), it certainly had an impact on the crypto markets.
Here, we explore how (and why) the UST crash will impact the rest of the crypto ecosystem.
What’s UST?
UST is an algorithmic stablecoin that isn’t backed by any collateral. Instead, its value is managed by an algorithm that uses an arbitrage mechanism to incentivise the market the keep UST’s price pegged to the US dollar.
When the price of UST goes above $1, traders can convert $1 of LUNA into UST profiting from the difference. And vis versa...