Ultimately they decided to go with the first option, and the worst case scenario played out as many expected. This would save LUNA from an inflationary spiral, and they could try and rebuild from scratch, with a new stablecoin. Let UST depeg and go to zero by stopping the arbitrage mechanism. The benefit is that UST could re-peg if it worked, but the risk here is that LUNA could go to zero and in that case UST would also go to zero This would cause LUNA’s supply to inflate and price to to rapidly depreciate as arbitrageurs scoop up UST, burn it and mint LUNA, and then dump that LUNA on the market.
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