Terra (LUNA) Collapses 60% As UST “Stablecoin” Drops Below $0.7
Terra’s LUNA is down more than 60% in 24 hours
Terra’s LUNA fell to $23.50 on the Binance exchange earlier in the day before regaining some ground.
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At the time of writing, the controversial cryptocurrency is trading at $28.
The flagship UST stablecoin plunged to an all-time low of $0.68 earlier in the day before recovering slightly to $0.80.
As reported by U.Today, the stablecoin briefly lost its peg on Sunday. After a short-lived recovery, things got much uglier for UST as Terra’s largest stablecoin lost its pen completely.
It is worth noting that UST is an algorithmic decentralized stablecoin meaning that the dollar peg is not maintained by centralized entities like Tether. The mechanism requires burning LUNA to mint UST (and vice versa).
Luna Foundation Guard has been busy deploying its massive Bitcoin reserves in an effort to restore stability to UST, but the stablecoin is still down 16.49% at the time of writing. It turned out that LFG’s Bitcoin reserves were not enough to help UST restore its dollar peg.
Cryptocurrency researcher Hasu believes that UST is not truly decentralized as the collateral coverage, which is used by one party, is used to conduct discretionary open market operations.
make things worse
Using its Bitcoin reserves to defend its dollar peg, Terra also exacerbated the market crash. The world’s largest cryptocurrency plunged to a new annual low of $29,731 earlier in the day.
For some it was writing on the wall. FTX CEO Sam Bankman-Fried predicted that a stablecoin backed by volatile assets would have a major market crash†
UST is not the first stablecoin to fail. Last June, Iron Finance’s algorithmic stablecoin, IRON, crashed to zero.