- Terra’s LUNA and UST prices are in free fall, having plummeted 53% and 15.5%, respectively.
- Binance cited network slowness and congestion and suspended withdrawals for both LUNA and UST.
- Terra used Bitcoin reserves to defend UST’s peg; now, $1.4 billion Bitcoin is on the move, hitting exchanges like OKX.
Terra’s algorithmic stablecoin UST entered free fall after losing its peg. The stablecoin is now trading at $0.87, 13% below the $1 level, and the LUNA price has dropped over 53% overnight. Cryptocurrency exchanges like Binance have suspended withdrawals for Terra’s LUNA and UST.
Terra price nosedived, as algorithmic stablecoin UST collapsed
UST Terra, the algorithmic stablecoin of Terra, slipped from its $1 peg to its lowest point of $0.74 over the past few days. UST is currently trading 13% below $1, at $0.87. The stablecoin continues to trade solidly below its peg.
In a broad market-wide sell-off, Terra’s LUNA and UST collapsed. Do Kwon, the CEO of Terraform Labs, considers this sell-off a coordinated attack against the protocol.
Kwon assured investors that the Luna Foundation Guard (LFG) council is “not trying to exit its Bitcoin position” by moving $1.4 billion in BTC and UST, instead, it is putting capital in the hands of a professional market maker to strengthen the peg of the algorithmic stablecoin.
The world’s largest cryptocurrency exchange Binance has suspended withdrawals of LUNA and UST, citing network congestion and slowness. Withdrawals for both tokens were suspended at 2:20 UTC on May 10, 2022, as there was a high volume of pending withdrawals. The exchange has announced that withdrawals will resume once the network is stable.
$1.8 billion were wiped out of UST’s market capitalization since it lost its peg. Since UST is an algorithmic stablecoin, it maintains its peg by burning LUNA and minting UST. The LFG council has deployed vast amounts of Bitcoin reserves to restore the stablecoin’s stability, to no avail.
Proponents in the crypto community have criticized UST and believe it is not truly decentralized since it has collateral backing used by a single party that performs open market operations. Since Terra has failed to defend the peg, the colossal crash has fueled a bearish sentiment among LUNA and UST holders.
Samuel Bankman-Fried, the CEO of FTX exchange, had predicted that volatile assets wouldn’t survive market crashes nearly a month ago. Iron Finance’s stablecoin IRON recently crashed to zero, making UST the second stablecoin to fail.
@Route2FI, a crypto analyst and researcher, believes Terra would change something in the LUNA/UST mechanism, and the tokens will recover from the recent crash.
broken with this.
I will follow the situation closely.
I don't think Terra is dead, and it will be very interesting to see if they will change something with the $UST / $LUNA mechanism. Maybe a $FRAX-model?
No matter what happens, it will take time to build trust.
— Route 2 FI (@Route2FI) May 10, 2022