Luna, the sister cryptocurrency of the controversial TerraUSD stablecoin, nearly dropped to $ 0. Cryptocurrency markets saw a strong sell-off in the past week after the TerraUSD stablecoin lost its $ 1 peg.
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TerraUSD, or UST, has been dragged into the spotlight in the past few days after the so-called stablecoin, which is expected to be anchored one-on-one with the American dollar, It fell significantly below the $ 1 mark.
UST is an algorithmic stablecoin that uses code to keep its price at around $ 1 based on a complex minting and combustion system. A UST token is created by destroying some of the related cryptocurrencies to keep the dollar peg.
Unlike rival stablecoins bind Other USD coins, UST is not backed by any real world assets such as bonds. Instead, the Luna Foundation Guard, a non-profit organization created by the founder of Terra Do Kwon, holds approximately $ 3.5 billion worth of bitcoin in reserve.
But in times of market volatility, like this week, UST is being tested.
Its anchor has been lost and now investors are rushing to download the associated luna token. Luna’s price plunged from around $ 85 a week ago to trading at around 3 cents on Thursday, according to data from CoinGecko, making the cryptocurrency nearly worthless.
On Thursday, Binance, one of the largest cryptocurrency exchanges in the world, said the Earth network, the blockchain associated with the moon token, “is experiencing slowness and congestion.” Binance said that, as a result, there is a “high volume of pending withdrawal transactions from the Earth network” on its exchange, in a sign that investors are rushing to sell Luna.
Binance had to suspend moon withdrawals for a few hours on Thursday due to congestion before resuming them.
The TerraUSD controversy has sparked contagion in the broader cryptocurrency market. This is because the Luna Foundation Guard holds bitcoin as a reserve of sorts. The fear is now that the organization will have to sell off its bitcoin holdings to try to support the peg.
Bitcoin has plummeted more than 29% in the past seven days and fell below $ 26,000 on Thursday to trade at its lowest level since late December. 2020
Tether, the largest stablecoin in the world, it also fell below its $ 1 anchor Thursday amid wider panic in cryptocurrency markets.