UPDATE - UST and LUNA collapsed. Here’s what happened...

Here is what happened with the collapse of UST and LUNA.

UPDATE - UST and LUNA collapsed. Here’s what happened:

The card castle fell apart. Regarding algorithmic stablecoins, in this article above we asked, “can their pegging survive a real stress test? How will they deal with de-pegging events?” We now know that the answers are “no” and “badly.” We also asked, “can the Anchor Protocol maintain those 20% APY yields in the long run?” and “what will happen to the ecosystem once those huge numbers disappear?” We now know that the answers are “no” and “collapse.”

Be it by market forces or by a coordinated attack, the UST suffered a de-pegging event that caused the whole Terra ecosystem to implode. Users responded to the imbalance with a bank run. The Anchor protocol, in which 14 billion of the 17.84 billion UST in existence were locked, got drained to about 11 billion. At that moment, the system started to fail and people began having problems withdrawing their funds.

For its part, UST’s dance partner LUNA also collapsed and both fell into a death spiral that destroyed them along with the Terra ecosystem. Does this mean algorithmic stablecoins are dead in the water and doomed to fail? No, and no. They will probably evolve and find a way to maintain equilibrium. Does this mean the Terra blockchain is done? Even though UST was just one product of many, it probably is.

The people behind it are working on pressing the reset button and begin anew in a new blockchain in which UST doesn’t exist. They are planning to airdrop the new LUNA to owners of the original tokens. Considering the amount of people that lost everything but their shirt, will the general public trust the LUNA people with their money again? That’s for them to decide. From the beginning, we told our readers that this whole affair was risky. That’s doubly true this second time around.