Terra’s LUNA has dropped more than 60% in 24 hours
Terra’s LUNA plunged to $23.50 on the Binance exchange earlier today before regaining ground.
At press time, the embattled cryptocurrency is trading at $28.
Flagship stablecoin UST dipped to an all-time low of $0.68 earlier in the day before recovering slightly to $0.80.
As reported by U.Today, the stablecoin briefly lost its peg on Sunday. After a short-lived recovery, things got much uglier for UST as Terra’s largest stablecoin completely lost its peg.
Not decentralized
It is worth mentioning that UST is an algorithmic decentralized stablecoin, which means that its peg to the dollar is not maintained by centralized entities like Tether. The mechanism requires burning LUNA to hit UST (and vice versa).
Luna Foundation Guard has been busy deploying its vast Bitcoin reserves in an attempt to restore the stability of UST, but the stablecoin is still down 16.49% at press time. As it turned out, LFG’s Bitcoin reserves were not enough to help UST restore its dollar peg.
Cryptocurrency researcher Hasu opined that the UST is not truly decentralized since its collateral, which is used by only one party, is used to perform discretionary open market operations.
Making things worse
By using its Bitcoin reserves to defend its dollar peg, Terra also exacerbated the market crash. The world’s largest cryptocurrency plunged to a new yearly low of $29,731 earlier today.
For some, the writing was on the wall. FTX CEO Sam Bankman-Fried predicted that a stablecoin backed by volatile assets would not survive a big stock market crash.
UST is not the first stablecoin to fail. Last June, Iron Finance’s algorithmic stablecoin, IRON, crashed to zero.
