According to data provided by CoinGecko, the supply of LUNA increased more than 30 times from 346 million to 12 billion in just 4 days as UST lost its stability.
The supply of LUNA, the native token of the Terra network, has increased more than 30 times after the UST stablecoin faltered to $0.20. The LUNA supply has increased from 346 million to 12 billion. The downward pressure exerted by supply on LUNA price pushed LUNA as low as $0.02. This massive increase in supply accelerated the decline in the price of Luna, which fell 99%. If the price of LUNA continues to fall, its supply will continue to increase.
How Is LUNA Related to UST?
The mechanism between LUNA and UST can be explained as follows: If the price of UST rises above one dollar, 1 dollar Luna is burned and used for 1 UST. On the other hand, if the price of UST drops below one dollar, 1 UST is exchanged for 1 dollar’s worth of LUNA.
As is known, currently the value of UST is well below 1 dollar. That’s why UST holders are trying to withdraw cash through LUNA using this mechanism instead of selling them on the market. Therefore, more LUNA is printed in response to the amount of UST burned.
As mentioned above, the LUNA’s falling price makes the situation worse. If the LUNA cost $100, you would only get 0.01 LUNA when you use 1 UST for a $1 Luna. Which wouldn’t increase LUNA’s supply too much.
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