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In this case the algorithm pegs the coin to another cryptocurrency, LUNA. You can algorithmically exchange 1 USD worth of LUNA for 1 UST at any time. But note
by initplus 4y ago
In this case the algorithm pegs the coin to another cryptocurrency, LUNA. You can algorithmically exchange 1 USD worth of LUNA for 1 UST at any time.
But note that this algo doesn't help you cash out your LUNA! Is 1 USD worth of LUNA really worth 1 USD if there is nobody who will buy it from you?
If there isn't a healthy USD-LUNA market, the fact that the UST-LUNA market is algorithmically enforced doesn't help you that much.
Algorithm won't help you make a healthy LUNA-USD market, only way is to have a market maker putting up USD and LUNA reserves to offer liquidity to buyers/sellers.
- jstrong 4y agoluna is way down, but there's still a luna/usd market.
- initplus 4y agoPrice of LUNA/USD doesn't matter so much - the issue is liquidity. Without a market maker offering sufficient liquidity to the LUNA/USD market the peg will break down. Yes there is still a price on the LUNA/USD pair, and this price has not collapsed completely. But there just aren't enough buyers on the USD side of the trade. The market isn't big enough to handle the demand to exit LUNA to USD. And so the UST peg breaks down.