The hugely popular altcoin Terra (LUNA), traded on the Binance exchange, continues to tumble due to issues with its UST stablecoin, dropping nearly 90 percent from its all-time high last month.
Altcoin price continues to fall sharply
The current value of the cryptocurrency, which was traded over $100 in the past few weeks, is $6.83. LUNA, the native token of Terra Blockchain, was trading around $65 on May 8. As we reported on Kriptokoin.com, UST fell below $0.70 yesterday and is struggling to return to parity with the dollar. It slumped below $0.75 after a partial recovery to $0.93. Terra co-creator Do Kwon tweeted that he was “close to announcing a recovery plan for UST.” Any recovery plan is expected to affect LUNA as well.
UST is designed to maintain its $1 value with a complex algorithmic strategy. As the value of both altcoins in the Terra ecosystem spiraled downwards, the strategy that encouraged arbitrage fell apart. The fall of the UST has renewed calls from US government officials for stablecoin regulations. US Secretary of the Treasury Janet Yellen used the following statements in her statements today:
A stablecoin known as TerraUSD has experienced a breakout and has lost value. I think it shows that this is a rapidly growing product and there are rapidly increasing risks.
The collapse in the Terra ecosystem surprised everyone
The situation also surprised crypto companies. Earlier yesterday, Binance, the largest cryptocurrency exchange by volume, announced that it is temporarily suspending withdrawals from LUNA “until it acknowledges the network is stable and the volume of pending withdrawals decreases.”
Before the crash, UST was the third most popular stablecoin (following only Tether (USDT) and USD Coin). Such cryptocurrencies are designed to provide calm in turbulent times. Still, Terra’s departure from the dollar pegged was believed to be one of the main reasons behind the recent sell-off that spilled over into the broader cryptocurrency market.