Data shows some 58% of traders were placing futures bets on higher LUNA prices despite Tuesday’s drop. That move accounted for over $63 million in liquidations, a higher-than-usual figure and one of the largest in the history of LUNA futures.
However, $387 million in open interest – or the amount of unsettled futures contracts – continues to exist at writing time, suggesting there could be more liquidations or volatile price action ahead as traders take profits or get liquidation.
Algorithmic stablecoins like UST are backed by a basket of assets, such as LUNA and bitcoin (BTC), without depending on any centralized third party to hold those assets. This week, however, UST lost its peg and fell to as low as 66 cents on Monday night before recovering to the 90-cent level on Tuesday.
Wednesday was not as kind in terms of recovery. UST fell to under 35 cents Wednesday morning as trader sentiment around the stablecoin dropped. This was despite the Luna Foundation Guard (LFG), a non-profit formed earlier this year to maintain a reserve backing for LUNA, liquidating its bitcoin holdings in an effort to try and save UST’s peg.
LUNA’s drop was among the steepest for a major cryptocurrency in recent times. Prices fell 85% in the past 24 hours, and 32% in the past hour alone as traders priced in contagion risks to the LUNA tokens after UST lost its peg earlier this week.
Part of LUNA’s decline came as parent firm Terra apparently issued more tokens to sell to the open market and raise money to back UST. As per its design, $1 worth of LUNA can be exchanged for exactly 1 UST, or vice versa. The additional supply could have contributed to LUNA’s tremendous price plunge in the past 24 hours.
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