The implosion of the algorithmic stablecoin TerraUSD and its sister Luna token sent shock waves through the cryptosphere, crashing crypto prices and roiling the entire ecosystem behind the coins. TerraUSD (UST) collapsed from its intended 1-to-1 peg to the dollar this month and dragged Luna down with it.
Terra, part of the Terra blockchain ecosystem, is supposed to maintain a 1-to-1 peg with the U.S. dollar. Over the past week, it has not kept that peg. Luna, and the related TerraUSD (UST) stablecoin collapsed following a wave of selling pressure.
Luna’s market value dropped to about $840 million from more than $20 billion before the TerraUSD collapse, according to data from CoinGecko. UST lost roughly $17.5 billion in value since crashing from its peg.
The cryptocurrency shot to prominence earlier this year when non-profit Luna Foundation Guard, an affiliate of Terraform Labs, the company behind TerraUSD, pledged to amass $10 billion worth of bitcoin to support its dollar peg.
Unlike other stablecoins that have reserves in traditional assets, TerraUSD maintains its peg through an algorithm that moderates supply and demand in a complex process involving the use of another balancing token, Luna.
Cryptocurrencies have been swept up in a sell-off this year in risk assets, which has picked up steam as data showed US inflation running hot, deepening investor fears about the economic impact of aggressive central bank tightening. The downturn in the crypto market which started in April has wiped billions of dollars in market value within a month.
(With inputs from agencies)
