A Token Economics Explanation for the De-Pegging of the Algorithmic Stablecoin: Analysis of the Case of Terra

The collapse of Terra's algorithmic stablecoin UST shocked the cryptocurrency market. This study investigates underlying causes de-pegging event through an in- depth analysis token economics Terra blockchain. Using on-chain data, this identifies a misalignment in economic incentive structure blockchain protocol as key contributor to de-pegging. It is found that undercompensation when it was redeemed played significant role event, with price on exchanges following value users could obtain by swapping for LUNA and selling results highlight importance properly designing protocols ensure their sustainability security.