The UST stablecoin depeg: how a dollar peg broke
The essentials in 30 seconds
- The UST depeg began on 9 May 2022, when the stablecoin lost its dollar peg.
- UST fell to about 10 cents within a week.
- UST was not backed by dollar reserves and relied on a burn and mint equilibrium with LUNA.
- Anchor paid depositors a 19.45% yield from Terra’s reserves.
- A peg holds when holders trust it, and trust is the first thing a run removes.
The UST depeg is the loss of the dollar peg of an algorithmic stablecoin. Starting 9 May 2022, UST slipped below 1 US dollar, and over the following week it fell to about 10 cents. This page explains how a peg works, why this one broke, and which checks a reader can apply to any stablecoin as of October 2026. It belongs to the Terra Luna collapse guide. This page is general information, not investment advice.
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What was the UST stablecoin dollar peg, and what promise did it make?
A dollar peg is a promise that one coin trades near 1 US dollar. A stablecoin keeps the promise in one of 2 ways. Some hold dollars or similar assets in reserve and redeem coins on request. Others use a rule in code that changes the supply of a companion token to push the price back to the peg.
UST belonged to the second family. It was not backed by dollar reserves. The difference decides what happens under stress: a reserve-backed coin meets redemptions with assets, while a rule-based coin depends on the market value of its companion token to keep the rule working.
How did the UST burn and mint design set up the depeg?
UST relied on a burn and mint equilibrium with LUNA absorbing volatility. In plain terms, the system tied the supply of UST to the supply of LUNA, so the price of one could be adjusted by creating or destroying the other. The design aimed to hold the peg without a bank account full of dollars.
In calm markets this looks efficient. The risk sits in the link: the value that supports UST is the market value of LUNA. If the price of LUNA falls, the support for UST falls too, and the 2 assets can drag each other down.
How did the Anchor yield pull deposits into the UST dollar peg?
Anchor was a lending and borrowing protocol on Terra, and UST depositors received a 19.45% yield paid from Terra’s reserves. A yield well above bank rates draws deposits, and large deposits raised the amount of UST that needed to hold the peg.
More deposits meant more exposure to a single mechanism. A yield funded by a reserve is a cost to the system, and when it continues for long the reserve shrinks. Asking who pays a yield and from which income is a basic check for every stablecoin product, whatever the issuer or the country.
What happened when the UST dollar peg broke in May 2022?
Starting 9 May 2022, UST lost its dollar peg. Over the following week it fell to about 10 cents. During the crash, holders converted UST into LUNA through the mint and burn system, which raised the supply of LUNA and lowered its price. Before the crash, UST was the third-largest stablecoin by market capitalisation.
On 13 May 2022, Terraform Labs temporarily paused the Terra blockchain. The sequence shows a run. Holders who feared a loss sold UST, the rule created more LUNA, the LUNA price fell, and confidence in the peg dropped again. A companion page on this site gives the numbers of the companion token.
Why did the bitcoin reserve not defend the UST dollar peg?
The Luna Foundation Guard, a non-profit set up in Singapore in January 2022, held 80,394 bitcoin worth about $2.4 billion as of 7 May 2022. Its purpose was to support the peg in a crisis, and bitcoin was its largest reserve holding.
The reserve did not restore the peg, and as of 16 May 2022 the use of the bitcoin remained unclear in public sources. Almost $45 billion of market value disappeared in the wider collapse, so the reserve was small against the size of the run.
Why did trust matter more than code in the UST depeg?
A peg is a shared belief that 1 coin equals 1 dollar. Code can enforce a rule, but it cannot force holders to keep the belief. When enough holders doubt the peg at the same time, each one has a reason to leave first, and the rule meets more selling than it can absorb.
Reserve-backed coins face runs too, and they answer with assets. A rule-based coin answers with new supply of a token whose price is also falling. The UST depeg shows the weakness of that answer, and it is the reason regulators study stablecoin design closely.
How did regulators respond to stablecoin designs like UST?
The Financial Stability Board published its global regulatory framework for crypto-asset activities on 17 July 2023. It contains revised high-level recommendations for global stablecoin arrangements, and it states the principle of same activity, same risk, same regulation. The framework draws on lessons from events of the past year.
In the European Union, the MiCA regulation entered into force in June 2023 and covers asset-referenced tokens and e-money tokens, which are the legal names for many stablecoins. Both texts ask issuers for transparency, authorisation and supervision, which are the points that matter most for a design like UST.
Which checks help a reader before holding a stablecoin like UST?
4 checks cover most cases. Find what backs each coin: dollars, bonds or a token of the same issuer. Find where the backing is held and who audits it. Find who pays any yield and from which income. Find what the issuer states about redemption in a run. Written answers give you facts to test.
The EQOS Asia method page explains how a structured score turns such checks into one reading, and the contact page lets you bring a stablecoin question from your own treasury.
See also in this guide
Frequently asked questions
What is the UST depeg?
It is the loss of the dollar peg of the UST stablecoin. Starting 9 May 2022, UST fell below 1 US dollar, and within a week it traded at about 10 cents. The event led to the Terra Luna collapse, in which almost $45 billion of market value disappeared within one week.
Why did the UST peg break?
UST was not backed by dollar reserves. It relied on a burn and mint equilibrium with LUNA, so its support was the market value of LUNA. As holders sold UST and converted it into LUNA, the LUNA price fell and the support weakened.
What was the Anchor yield?
Anchor was a lending protocol on Terra that paid UST depositors a 19.45% yield from Terra’s reserves. The yield attracted deposits, and the system depended on the reserves that funded it.
Can a stablecoin lose its peg again?
Any stablecoin can lose its peg if holders doubt its backing. A reader can check what backs the coin, where the backing is held, who audits it and who pays any yield. These checks give facts instead of promises, and they take less than an hour to run for a single coin.
Test your knowledge
1. On which date did UST start to lose its peg?
- 9 May 2022
- 13 May 2022
- 25 May 2022
Show the answer
9 May 2022.
2. What backed UST?
- Dollar reserves
- A rule linked to LUNA
- Gold
Show the answer
A rule linked to LUNA.
3. What yield did Anchor pay UST depositors?
- 1.945%
- 194.5%
- 19.45%
Show the answer
19.45%.
4. What did UST trade at after about a week?
- About 90 cents
- About 10 cents
- About 2 dollars
Show the answer
About 10 cents.
5. What did the Luna Foundation Guard hold on 7 May 2022?
- Nothing
- Gold bars
- 80,394 bitcoin
Show the answer
80,394 bitcoin.
About the author
Stéphane Jambu
President, EQOS Forecast Asia
Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile
Sources: EQOS Asia method page (eqos-asia.com/method.html) and contact page (eqos-asia.com/contact.html), en.wikipedia.org/wiki/TerraUSD, en.wikipedia.org/wiki/Terra_(blockchain), fsb.org/2023/07/fsb-global-regulatory-framework-for-crypto-asset-activities, esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica, consulted on 23 October 2026. Page updated on 23 October 2026.