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 strongDRIFT 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 → CRITICALwith 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 falsePEGGED 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)
for exactly this reason.