- Terra (LUNA-USD) developers are rolling out a plan to save the LUNA crypto
- Since Saturday, the coin has plummeted over 99%
- A large TerraUSD (UST-USD) burn could stabilize the network’s two flagship cryptos
LUNA crypto holders have undoubtedly been having a terrible week. The coin is seeing one of the most spectacular plunges in years, losing nearly all of its value. Meanwhile, developers have been scrambling to regain control over what remains of the project. A series of emergency measures hopes to do just that.
Terra falling victim to such a plunge is a big surprise, given the size of the network. LUNA consistently ranks among the 10-largest crypto projects in the world by market capitalization. Its sibling token, the UST stablecoin, reliably ranks among the top 15. These projects, at their height, shared a market capitalization of over $50 billion.
But, there have been signs pointing to the price spiraling this week. UST’s status as an algorithmic stablecoin has been a heel; it was built to mathematically keep its price at $1 without having an underlying reserve. Of course, this was massively damaging to the token when users flooded out of the project in January. The rapid exit of users was enough to knock UST from its peg and send prices spiraling.
Since then, the Luna Foundation Guard (LFG) has taken steps to better secure the project it oversees. A $10 billion Bitcoin (BTC-USD) buying spree was meant to supply the necessary reserves to act as a failsafe. However, that is proving less than effective right now.
LUNA Crypto Continues Rapid Losses While Developers Devise a Plan
Saturday saw the beginning of this fast decline for the LUNA crypto. Coins were trading near $77 on May 7, just before the UST stablecoin lost its peg again. While not as severe as the first time, developers had great troubles trying to bring prices back up to $1 from 90 cents. Around this time, the LFG deployed $1.5 billion in assets — half from the Bitcoin reserve and another half of UST — to lend out to exchanges and buy more BTC.
The hope was that these funds would stabilize the coin, but they proved ineffective. Since then, UST has rapidly declined, reaching lows of 30 cents. The LUNA crypto saw a far worse decline. In the days since this plunge started, the coin has shaved off over 99% of its value. It now trades for less than 2 cents per coin.
Terra developers have been uncharacteristically quiet throughout the week. Today, they are sharing more of their plans, with a three-pronged effort to stabilize UST prices.
First, the developers will burn all of the UST remaining in its community pool to reduce supply. It will also burn 371 million worth of UST that exists on the Ethereum (ETH-USD) network. Rounding out the effort is a plan to stake 240 million LUNA to stabilize governance on the network. In addition to this plan, developers are embracing a community proposal to increase the burn rate of UST.
If all goes well, the LFG expects the plan will at least bring order back to the LUNA crypto and UST. However, it will also have to rebuild trust within the community.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.