Luna, the sister cryptocurrency of the controversial TerraUSD stablecoin, nearly fell to $ 0. Cryptocurrency markets have seen a sharp sell-off over the past week after TercoUSD lost its fixed value of $ 1.
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Luna, the sister cryptocurrency of the controversial TercoUSD stablecoin, crashed to almost $ 0.
TerraUSD, or UST, has been in the spotlight for the past few days after the so-called stable coin, which is believed to be pegged to the US dollar, fell sharply below the $ 1 mark.
UST is an algorithmically stable coin that uses code to keep its price around $ 1 based on a sophisticated digging and saving system. The UST token is created by destroying part of the associated cryptocurrency luna to maintain the fixation of the dollar.
Unlike competing stable Tether and USD Coin coins, UST is not backed by any real-world assets such as bonds. Instead, Luna Foundation Guard, a non-profit organization founded by Terra founder Doo Kuon, has about $ 3.5 billion in bitcoins in reserve.
But in times of market volatility, such as this week, the UST is being tested.
Its attachment has been lost and now investors are in a hurry to throw away the associated luna token. Luna’s price fell from about $ 85 a week ago to about 4 cents on Thursday, according to Coin Metrics, making the cryptocurrency almost useless.
On Thursday, Binance, one of the world’s largest cryptocurrency exchanges, said the Terra network, the blockchain linked to the luna token, was “experiencing slowness and congestion.” Binance said that as a result, there is a “large volume of pending withdrawal transactions from the Terra network” on its stock exchange, a sign that investors are in a hurry to sell luna.
Binance had to stop luna’s withdrawals for several hours on Thursday due to traffic jams before resuming them.
The dispute with TerraUSD has infected the wider cryptocurrency market. This is because the Luna Foundation Guard holds bitcoin as a kind of reserve. The fear is that my organization will have to sell its bitcoins to try to support the fixation.
Bitcoin has fallen more than 29% in the last seven days and fell below $ 26,000 at one point on Thursday to trade at its lowest level since late December 2020.
Tether, the world’s largest stable coin, also fell below its fixed value of $ 1 on Thursday amid wider panic in cryptocurrency markets.