Here’s what happened to UST and LUNA in 2 minutes

Merunas Grincalaitis
2 min readMay 11, 2022
It was great while it lasted

As you have probably noticed, UST, one of the largest stablecoins lost it’s peg and is trading far below the $1 per UST promised. In theory it shouldn’t be possible but the system that maintains that value was terribly flawed…

You see, UST is backed by LUNA. Say UST drop to $0.9 per UST, then an algorithm will pickup that drop and burn UST to buy LUNA. So the program changes UST at $0.9 for the equivalent $1 of LUNA.

When that happens, the supply of UST is decreased and the amount of LUNA is increased. The program sell LUNA to recover their money and use it to buy UST. The peg is restored.

Apparently what happened is that there was a big move to sell a huge amount of UST to drop its price. When that happened the coin was de-pegged for a while which increased the amount of LUNA alarmingly fast, dropping the value of LUNA hard.

People noticed the big drop in peg value and all sorts of alarms went off creating FUD. A ton of people went to twitter to find answers when all they found was more worrying information and decided to sell their UST to get out of all this mess.

At one point there was around 18 billion UST in circulation which means the Terra ecosystem had to have 18 billion worth of reserves either in LUNA or others. Some days ago they bought 1.5 billion worth of bitcoin. That bitcoin went quickly down on price so it was more like 1 billion worth of reserves.

Eventually, they demand vastly surpassed the supply. Way more people wanted to sell UST and be done with the project than people wanting to buy it. There were no longer enough reserves in LUNA or BTC. So the project peg kept going lower and lower.

At this point nobody trusts UST it has gone to a point of no return. In fact I was watching it struggle so hard to get past a critical low, at which point I sold my holdings at a loss.

It’s a terrible day for so many people. If any of you need any help just hit me up. We all make mistakes, we all lose money but we got each other.

Merunas Grincalaitis

Blockchain expert. Join my email list here to receive new articles every few months