UST stablecoin dips 31% while Luna sank to the bottom with 95% fall
TerraUSD, or UST, is a so-called stable coin that’s meant to balance a 1-to-1 peg with the U.S. dollar. But the cryptocurrency dived to as low as 31 percents Wednesday morning. It was the last trading at less than 50 cents, according to CoinGecko data.
Sister token luna plunged 95% to just $1.69. The latest dive means luna has disappeared more than 98% of its value in the past seven days.
Bitcoin and ether saw more silent moves. Bitcoin fell about 1% to $31,378 while ether wiped 0.6% to $2,393.
Stablecoins are similar to bank accounts for the crypto economy, contributing a sound store of value to avoid the kind of volatility cryptocurrencies like bitcoin have become legendary for — in theory, at least.
UST is known as an “algorithmic” stable coin. It uses a tough system of minting and burning tokens to balance supply and stable prices. UST’s price has fallen into pieces under the pressure of a sell-off in cryptocurrencies recently, resulting in further chaos in the market.
Do Kwon, the coin’s creator has collected billions of dollars worth of bitcoin through his Luna Foundation Guard fund to support UST in times of crisis. The terror now is that Luna Foundation Guard dumps those bitcoins onto the market, resulting in an even bigger sell-off.
Bitcoin briefly collapsed below $30,000 late Monday, its lowest price since July 2021. The world’s biggest digital coin is now hovering slightly above that level. It’s dipped over 50% since setting an all-time high of nearly $69,000 in November.
David Moreno Darocas, a research analyst at CryptoCompare, said the situation highlights the “delicacy” of algorithmic stable coins like UST.
“UST has generated to be both an essential and disputable fragments of the crypto system,” he said.
The phenomenon is still relatively new to the market. But UST has grown to become a major player in the crypto economy, with the transmission of a supply of 16 billion tokens.
Investors are now closely watching how Luna Foundation Guard responds to prop up its delicate stable coin. Kwon said Tuesday he was “shutdown to declaring a redemption plan” for UST. “Hang tight,” he tweeted.
Elsewhere, crypto traders were also disturbed by concerns over Coinbase’s financial health.
CEO Brian Armstrong clarified Tuesday that there was “no risk of bankruptcy” for the crypto exchange even as digital currency prices fluctuate.
“For our retail customers, we’re taking further steps to upgrade our user terms such that we offer the same protections to those customers in a black swan event,” he said in a series of tweets. “We should have had these in place previously, so let me say sorry for that.”