UST Depeg Triggers Terra/LUNA Spiral
Algorithmic stablecoin UST lost its peg, setting off a reflexive unwind in LUNA and forced selling of reserves. We exited algorithmic stablecoins, tightened counterparty and custodian tiers, and focused on fully reserved fiat‑backed rails while reducing DeFi yield exposure.
UST’s peg eroded as on‑chain liquidity thinned and redemptions accelerated, forcing the ecosystem to mint LUNA against falling collateral value. The negative flywheel crushed LUNA and impaired confidence across algorithmic designs. Reserve liquidations, including BTC sales, weighed on broader crypto, while market makers widened spreads and centralized venues raised haircuts.
The event exposed fragilities in concentrated liquidity pools, reflexive tokenomics, and governance. It also reverberated through CeFi lenders and yield platforms as collateral values dropped and mismatched maturities surfaced. Stablecoin users rotated toward fully reserved instruments, and regulators sharpened focus on disclosures, reserve quality, and redemption mechanics.
We moved swiftly to exit algorithmic stablecoins, reduce protocol concentration, and curtail leverage. We consolidated custody with top‑tier, SOC‑audited providers and shifted stablecoin usage to transparently backed options with strong attestation practices. We cut DeFi yield strategies where liquidity incentives masked structural risks.
In client mandates, we raised cash buffers, introduced stricter position limits for untested tokenomics, and used longer‑dated BTC and ETH call spreads to preserve upside under reduced beta. Governance thresholds were tightened, and we aligned re‑entry to evidence of resilient liquidity and improved disclosure standards across stablecoin issuers.
- Exited algorithmic stables and cut DeFi yield
- Consolidated custody with top‑tier providers
- Used options to retain upside with lower beta
