Terra (LUNA) collapsed by over 95%

Terra continued to collapse as the blockchain’s stable UST coin failed to regain its attachment to the dollar.

Rumors that the venture-backed bailout had failed added to the pressure to lower LUNA’s price.

Terra’s ecosystem is falling apart

The LUNA token has fallen by more than 90% in the last 24 hours as sales pressures have reached unprecedented levels. Terra’s algorithmic stable coin also deviated from its fixed value against the dollar, falling briefly to the bottom of $ 0.29 before reporting a slight recovery. LUNA is currently trading at around $ 5.4, down more than 90% this week alone.

Efforts to restore the UST’s dollar fixation have seriously affected the price of LUNA. UST aims to maintain its fixation algorithmically, allowing everyone to exchange 1 UST for LUNA tokens worth $ 1.

Typically, this algorithmic relationship would encourage arbitrators to derive value from the difference in price between the UST and the US dollar, helping it maintain a price of around $ 1.

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The Terra dual-token mechanism typically maintains UST within 1% of the expected dollar value. However, when the UST falls significantly below its dollar fixation, the algorithmic link produces more LUNA tokens that arbitrageurs have to sell on the open market to profit from their deals. If UST fixation is not restored, the influx of LUNA tokens can create a chain effect that continuously lowers the price until UST fixation is restored.

LUNA is not the only token in Terra’s ecosystem that has suffered extreme losses in the last 24 hours. Tokens of Terra’s best DeFi protocols such as Anchor and Astroport also fell 72.3% and 81.6%, respectively. According to the blockchain data platform DeFi Callthe total value locked in the Terra DeFi protocols fell more than 87% from $ 29.6 billion on May 5 to $ 2.8 billion today.

A recent Twitter post by crypto researcher mhonkasalo shows that fundraising to save LUNA and UST may have failed. It has not yet been confirmed whether this rumor is true. However, given the continuing collapse of LUNA and the declining confidence in the UST, it seems likely to see deteriorating sentiment towards the project.