Cryptocurrency Luna and Linked ‘Stablecoin’ TerraUSD Both Collapse After UST Breaks From USD Peg
While most people have heard of cryptocurrency, their knowledge of the burgeoning industry ends with Bitcoin and possibly Ethereum.
Few are aware of just how vast the crypto market is, which now boasts over 12,000 coins, including the lesser-known stablecoins, one of which just crashed in spectacular fashion.
Unlike most cryptocurrencies, which trade independently of just about everything else, a stablecoin is a cryptocurrency that is tied to the performance of another asset, such as a commodity, currency or other financial instruments. The goal of stablecoins is to reduce volatility associated with other cryptocurrencies, making them more “stable” and thus more useful for spending as an actual currency.
One of these stablecoins is TerraUSD (UST), which is tied to the US dollar and run by the Terra platform, which uses blockchain to control the supply of the cryptocurrency, keeping it priced at $1. Since being introduced in December 2021, this system worked and kept the stablecoin trading at roughly $1. However, on May 8th, the coin suddenly broke away to the downside. It plummeted hard and fast; it currently trades below $0.12, an 88% loss in a week.
With the TerraUSD peg to the US dollar seemingly broken, investor confidence took a severe hit. This resulted in Terra Coin (LUNA), a cryptocurrency tied to the performance of the Terra platform, suffering an even worse plunge than TerraUSD; after trading at $86 on the day of TerraUSD’s breakdown, LUNA has plunged to nearly $0.
The selloff was so severe that leading cryptocurrency exchange, Binance released a statement that the Terra network was “experiencing slowness and congestion.” This resulted in a “high volume of pending Terra network withdrawal transactions” on the Binance exchange. Investors are fleeing the Terra network so quickly that it’s slowing down the network.
Whether the Terra network and LUNA can recover will largely depend on if they can fix whatever issues caused TerraUSD to become disconnected from the U.S. dollar. If they can get TerraUSD back to $1, it will go a long way toward re-establishing confidence in the platform. If they cannot get TerraUSD back to $1, then there’s a good chance the entire Terra network implodes. Only those with an ultra-high risk tolerance should get anywhere near LUNA until there is more clarity on the platform’s viability moving forward.
TerraUSD (UST) is currently changing hands at $0.1169, down -35.62% on the day. YTD, UST coin is down -88.31%.
Terra (LUNA) is currently trading at $0.0001933, down –16.63% on the day. YTD, LUNA coin is down -99.99%.
Read Next: Bitcoin Hits Two-and-a-Half-Year Low Amid Cryptocurrency Carnage
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Disclaimer: Wealthy VC does not hold a position in any of the stocks, ETFs or cryptocurrencies mentioned in this article.
