The price of TerraUSD (UST) pegged at $1 has dropped for the second time in three days. The stablecoin's price dropped to $0.94, according to Coin Gecko Cap data.
Stablecoins peg their value to some external reference such as currencies like the US dollar or commodities like gold. In the cryptocurrency markets, we mainly use stablecoins pegged to the dollar. UST is one of them, and it exists by claiming a decentralized stablecoin.
Terra's UST lost its peg to $1 after a massive sell-off on Binance and Curve Finance. This naturally caused LUNA to decline, with many people trading LUNA for cheap UST and thus making a profit.
In the Bitcoin drop on Saturday, the UST price dropped to $ 0.985 and rose back to $ 1 on Sunday. As it is known, TerraUSD, an algorithmic stablecoin, works with the price of its sister token LUNA, using a series of mint and burning mechanisms, thereby fixing its price at $ 1.
The TerraUSD token had fallen below $1 before, and the decline was even greater. However, the latest drop was the first of its kind and made a lot of noise as the Terra Foundation announced that it has started to support this algorithmic stablecoin with Bitcoin and Avalanche (AVAX) reserves.
When a stablecoin is traded at a different level than the price of the asset it is tracking, it is called a “depeg”. The last depeg experienced by UST came after the Terra Foundation Guard announced on Sunday night that $1.5 billion in Bitcoin reserves would be “leased” to professional market makers in order to maintain the fixed price of TerraUSD at $1.
Tron founder Justin Sun also announced that they are creating an algorithmic stablecoin similar to Terra's and will start offering 30% annual returns for the first time. It is thought that the exits from Terra's stablecoin platform Anchor may have been triggered by this announcement.
TerraUSD price has dropped to $0.939003 at the time of writing, according to CoinGecko data.