Is Fantom the Next LUNA? Stablecoin Becomes the Latest to Lose Its Dollar Value

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  • LUNA lost its peg and 99.9% of its value from backing TerraUSD (UST).
  • Panic around crypto-backed stablecoins resulted in bulk sell-offs and dramatic price drops.
  • Fantom experienced a similar drop, losing its peg, but there may be hope for it yet as the designers roll out a plan for re-stabilization.

Stablecoins become unstable as LUNA and Fantom plummet.

Luna: A cautionary tale

There has been a lot of talk of stablecoins in the crypto-verse recently. To clarify before moving forward, stablecoins are cryptocurrencies that have a valuation that is pegged to or backed by another currency. Some, such as Tether (USD) or USD coin (USDC), are backed by actual dollars or equivalent commodities stored in a bank, making them stable indeed. But some stablecoins are backed by other cryptocurrencies.

TerraUSD (UST), for example, is backed by its sister coin, LUNA. Last week, TerraUSD lost almost all of its value and dragged LUNA down with it. A vicious cycle began as the price dropped and investors experienced pressure to sell, resulting in the value of UST going down and more LUNA being needed to maintain the peg. LUNA had to flush the market with more coins to keep the ratio of $1 worth of UST to be used to mint $1 of LUNA. When this happened, the total supply of LUNA went from around 725 million tokens to about 7 trillion over the course of -- brace yourself -- one week. And since cryptocurrency, like all economic systems, is based on supply and demand, LUNA lost 99.9% of its value. Inflation at its most extreme.

What is happening with Fantom?

DEI is a coin that operates within a Fantom-based DeFi project called DEUS. On Sunday, it fell $0.20 below its peg, possibly due to panicked investors wanting to sell their DEI for something backed by a more reliable asset, in the wake of Luna's fall. The selling off, of course, resulted in further price drops. The coin, which had been sitting comfortably at $0.99, plummeted to $0.55, officially unstabilizing the stablecoin.

The difference here may be that, perhaps after seeing what happened with LUNA, DEUS is attempting to roll out a recovery plan in the form of a Treasury bond program to try to secure peg stability. It is hopeful that a resolution will come via fully collateralized backing and a confident peg at $1. We eagerly wait for this plan to unfold, but there have already been spikes again in price, in contrast to LUNA, which has remained in the depths.

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