It's an intrinsically flawed concept even without the 20% interest rate.
The algorithmic balancing between UST/LUNA doesn't help at all with maintaining a LUNA/USD market. UST is pegged to USD indirectly through LUNA, and LUNA itself isn't pegged to anything. Nor is there a big market maker willing to buy/sell LUNA at any price.
A stablecoin that isn't pegged to USD by a 1:1 cash backing by the issuer just can't work. Putting an extra cryptocurrency and an algorithm in between the stablecoin and USD makes the system seem more legitimate to users but doesn't solve the fundamental issue with an unbacked stablecoin.
Yeah, the important thing to understand is the balance only in a simplistic model that assumes unlimited liquidity. If there isn't enough liquidity then it just death spirals.
The algorithmic balancing between UST/LUNA doesn't help at all with maintaining a LUNA/USD market. UST is pegged to USD indirectly through LUNA, and LUNA itself isn't pegged to anything. Nor is there a big market maker willing to buy/sell LUNA at any price.
A stablecoin that isn't pegged to USD by a 1:1 cash backing by the issuer just can't work. Putting an extra cryptocurrency and an algorithm in between the stablecoin and USD makes the system seem more legitimate to users but doesn't solve the fundamental issue with an unbacked stablecoin.