Terra’s two primary tokens are currently in free decline. UST, a so-called stablecoin designed to maintain a 1:1 peg with the US dollar, fell to 31 cents on Wednesday. According to CoinGecko data, it was last traded for less than 50 cents. Sister token luna has dropped more than 80% to $3.78.
Bitcoin and ether had more subdued movements, initially falling before modestly rising. Bitcoin was up 1% to over $31,609, while ether was up 2% to $2,419.
Stablecoins are similar to bank accounts in the crypto world, providing a secure store of value to prevent the kind of volatility that cryptocurrencies like bitcoin have become known for – at least in principle.
The stablecoin UST is an “algorithmic” stablecoin. To manage supply and stabilize pricing, it employs a complicated system of minting and burning tokens. The price of UST has lately fallen due to a sell-off in cryptocurrencies, causing further concern in the market.
Do Kwon, the coin’s founder, has stockpiled billions of dollars in bitcoin to support UST in times of distress through his Luna Foundation Guard fund. The danger now is that Luna Foundation Guard will dump those bitcoins on the market, causing a further sell-off.
Late Monday, bitcoin fell below $30,000 for the first time since July 2021. The world’s most valuable digital coin is presently hovering just above that mark. It has dropped by more than half since peaking at about $69,000 in November.
The event, according to David Moreno Darocas, a research analyst at CryptoCompare, demonstrates the “fragility” of algorithmic stablecoins like UST.
“UST has grown to be both an integral and controversial piece of the crypto ecosystem,” he said.
This is a relatively new phenomenon. With a circulating quantity of 16 billion tokens, UST has risen to become a key player in the cyber industry.
Investors are now watching Luna Foundation Guard to see how it responds to its struggling stablecoin. Kwon claimed he was “near to releasing a recovery plan” for UST on Tuesday. He tweeted, “Hang tight.”
Concerns over Coinbase’s financial viability have also shaken crypto traders elsewhere.
Even as digital currency prices fall, CEO Brian Armstrong stressed Tuesday that the crypto exchange is “not in danger of going bankrupt.”
In a series of tweets, he stated, “For our retail customers, we’re taking extra efforts to amend our user terms so that we can extend the same protections to those customers in a black swan scenario.” “Please accept my apologies for not having these in place earlier.”
In pre-market trading on Wednesday, Coinbase shares were down 19 percent after the company disclosed a 27 percent drop in first-quarter sales.