> ## Documentation Index
> Fetch the complete documentation index at: https://pegana.xyz/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# UST: how an algorithmic peg unwinds in 72 hours

> Terra's UST broke from $1 on May 9 and never came back. Required reading for anyone holding any algorithmic or yield-bearing stable on Solana.

<Warning>
  **Asset**: UST · **Class**: Algorithmic synthetic · **Date**: 2022-05-09
  **Worst spread**: −7000 bps · **Duration**: Terminal — never recovered
  **Detected live**: No (pre-Pegana retrospective)
</Warning>

## Background

UST was an algorithmic stable backed by LUNA mint/burn. Anchor Protocol offered \~19.5%
yield on UST — most of UST's supply sat there. By Q1 2022 the system was a reflexive
flywheel: LUNA holders trusted UST because UST holders trusted LUNA.

## Trigger

A series of large UST exits from Curve's 4pool started May 7 2022. The depth dropped
enough that UST printed \$0.985 in liquid venues — a 1.5% spread for a stable. That
should have been a strong `DRIFT` signal.

## Cascade

* UST holders rushed to mint LUNA to exit — burn the stable, mint the volatile.
* LUNA supply went from \~340M to >6.5B in 72 hours. Price collapsed >99%.
* The reflexive backstop broke: minting more LUNA to defend UST destroyed both at once.
* Pegana would have stayed in `DEPEG → CRITICAL` with no recovery transitions — the
  worst alerting band reachable for a spread-priced asset.

## Recovery

There is no recovery. UST trades fractions of a cent. The protocol was relaunched as
Terra 2.0 without the algorithmic stable.

## What Pegana would have shown

* **May 7, \~12:00 UTC** — Curve imbalance; smoothed spread crosses 30 bps.
  **`PEGGED → DRIFT`**.
* **May 8, \~18:00 UTC** — Spread crosses 100 bps despite continued exits.
  **`DRIFT → DEPEG`**.
* **May 9, \~06:00 UTC** — Spread crosses 500 bps. **`DEPEG → CRITICAL`**.
* **May 9, \~14:00 UTC** — Spread blows past 1000+ bps, well beyond `2× critical`.
  **`CRITICAL → BLACK_SWAN`** — the terminal-grade band.
* **No recovery** — UST never re-pegs, so the spread never decays; the asset stays in
  `BLACK_SWAN`. (BLACK\_SWAN auto-exits via the normal hysteresis *if* the spread genuinely
  recovers — it is not a no-reset terminal state; ADR-0025.)

## Lesson

Algorithmic stables print false `PEGGED` for months at a time. The signal isn't the
daily noise, it's **the depth at which arbitrage stops working**. Pegana now reports
liquidity quality alongside spread (see [confidence score](/docs/concepts/confidence-score))
for exactly this reason.

## Sources

* [Coindesk — Anatomy of the UST crash](https://www.coindesk.com/learn/the-fall-of-terra-a-timeline-of-the-meteoric-rise-and-crash-of-ust-and-luna/)