Terra (LUNA), TerraUSD (UST) Crash News (May 12): The price of Terra (LUNA) has plummeted to just $0.5 in the last 24 hours. The once popular crypto has lost over 99 per cent of its price value in the last 7 days and over 96 per cent in the last 24 hours, according to CoinMarketCap data. Similar to LUNA, the price of Terra’s so-called stable coin – TerraUSD(UST) – is now worth around $0.6, down over 33 per cent in the last seven days.
Terra price crash has come as a wake up call for crypto investors, with analysts expecting further decline in in value of both LUNA and UST.
“The recent TerraUSD debacle has only added to the current market woes,” WazirX Trade Desk said in a note.
“The crypto markets may continue to bleed as sell-offs continue and given the current market sentiment,” it added.
TerraUSD is a dollar-pegged stablecoin. Its price is supposed to be equivalent to the US dollar. However, over the last few days it has lost its peg twice and hasn’t recovered.
Experts say that the Terra collapse may pose a number of risks to retail and institutional investors.
“While this is a relatively small-cap cryptocurrency and its footprint is relatively contained, it still has some major implications for the sector, particularly if it spooks lawmakers or regulators already concerned about stablecoin collapse,” CoinDesk pointed out in its newsletter “State of Crypto”.
Why UST is falling and not USDT, BUSD?
Interestingly, other popular stablecoins like Tether (USDT), USD Coin (USDC) and Binance Dollar (BUSD) have maintained their prices around $1 amid the ongoing crypto market crash.
Experts believe that the UST debacle has exposed the vulnerabilities of algorithmic based stable coins.
Stable coins like USDT, USDC and BUSD are backed by actual dollar reserves as claimed by issuers of these cryptos. This means, for even unit of these stable coins, there is a matching US dollar locked in a bank account somewhere.
ALSO READ | Are algorithm-based stable coins unstable?
In contrast, algorithmic stable coins are backed by another crypto. In UST’s case, it is LUNA.
“…the value of Terra’s family of stablecoins is maintained through a system of arbitrage incentives, open market operations, and dynamic protocol levers that maintain robust peg stability and scalability of its supply without the centralized control or capital-inefficient designs of incumbents,” Luna Foundation Guard, a Singapore-registered non-profit entity to ensure UST stability, says on its website.
(Cryptos and other virtual digital assets are unregulated in India. Please consult your financial advisor before investing in these so-called assets)