TerraUSD (UST), a “stablecoin” that was allegedly pegged to $1, plummeted on Wednesday to just 26c, according to Coinbase (NASDAQ:COIN) data. UST’s sister token Luna cratered as well over 95% to $3.6.
UST then recovered to trade around $0.45 at 05:46 EST.
Stablecoins are cryptocurrencies designed to provide a stable store of value to avoid the high volatility associated with big cryptocurrencies such as Bitcoin. The price of stablecoins is usually pegged to traditional currencies or exchange-traded commodities.
TerraUSD uses a complex system that involves minting and burning tokens to manage supply and keep prices stable. However, its price has plunged in recent days after a major sell-off in the crypto market, spooking investors even more.
UST was created by Terraform Labs founder and CEO, Do Kwon, who secured billions of dollars in Bitcoin through his Luna Foundation Guard fund to back UST during periods of turmoil. But now investors are concerned that Luna Foundation Guard would unload the amassed Bitcoins onto the market, which could trigger an even larger sell-off.
Bitcoin fell below $30,000 Tuesday, touching its lowest mark since July 2021, before briefly recovering above that level. The world’s largest cryptocurrency is down roughly 56% from its all-time high of almost $69,000 in November 2021.
CryptoCompare analyst David Moreno Darocas said the latest developments emphasize the “fragility” of algorithmic stablecoins such as TerraUSD.
“UST has grown to be both an integral and controversial piece of the crypto ecosystem,” he added.
Treasury Secretary Janet Yellen warned yesterday that the crisis surrounding UST shows algorithmic stablecoins offer “risks to financial stability”.
By Senad Karaahmetovic