In the recent market downplay noticed across most cryptocurrency platforms, Luna, the sibling cryptocurrency of the controversial stablecoin TerraUSD, has plummeted to close to $0.01.
In recent days, TerraUSD, or UST, has been regarded as a stablecoin, which implies that it is expected to be equal to or within range with the U.S dollar. However, the controversial stablecoin has lost its’s foothold as it has significantly gone below $1.
The strategy of the UST is to rely on the algorithm as a stablecoin. With sophisticated codes, it should maintain an all-time price of $1. In a bid to preserve the stability of the UST stability, a token is generated, which has destroyed a part of the Luna currency resulting in the market downturn.
Unlike Tether and USD Coin, UST is not backed by real-world assets such as bonds. Instead, the Luna Foundation Guard, a non-profit organisation established by Terra’s inventor Do Kwon, has around $3.5 billion in Bitcoin in reserve. However, whenever the cryptocurrency market is shaken like this week, the’ stablecoin’ stability is tested.
It has lost its peg, and investors are racing to sell the accompanying Luna token. CoinGecko reported that the value of the Luna coin has been driven to the ground by more than $85 in the previous week. As of today, it has a total value of about 3 cents, rendering it nearly useless.
Binance, one of the largest cryptocurrency exchanges globally, announced on Thursday that the Terra network, which is the basis of the Luna coin, has been experiencing technical congestion and slow performance. As a result of these events, there are tons of pending withdrawal transactions from the network. This paints the picture of many crypto investors trying to scamper away with what is left of their Luna assets
Due to the congestion, Binance had to stall withdrawal transactions from the Luna network for a few hours before removing the ban on transactions. The issue over TerraUSD has spread to the larger cryptocurrency market. Since the Luna Foundation Guard has Bitcoin as a reserve. It is now feared that the group may have to liquidate its bitcoin assets to maintain the peg.
Bitcoin has declined by more than 29% in the previous seven days, falling below $26,000 on Thursday to trade at its lowest level since late December 2020. Tether, the largest stablecoin globally, also plummeted below its $1 peg on Thursday amid a larger market panic.