UST, Terra’s stablecoin, which is intimately identified with decentralized assets that are tied to the USD plunged 40% below its dollar peg before it climbed back a day later on Tuesday. But LUNA stayed in free fall and lost 50% of its value in 24 hours of trading at mid-morning, London time.
TerraUSD is the 4th largest stablecoin and the loss on Tuesday of one-third of its value shook investors in cryptocurrency. It was partially responsible for Bitcoin sliding fast below the $30,000 mark for the 1st time ever in ten months.
These digital coins are pegged to the worth of conventional assets, including the USD. They have become popular as they are safe havens during unstable times in the cryptocurrency market. They have become a common exchange medium and are often traded to move resources around and as a basis for speculation on various cryptocurrencies.
UST is such an algorithmic stablecoin. It is currently the 4th largest going by market capitalization. And it broke away from its equal peg to the USD on Tuesday and crashed to $0.67.
Luna Foundation Has Pledged To Pick Up Terra To Support Its Price
It has become prominent earlier in 2022 when Luna Foundation Guard, which is Terraform Labs’s affiliate, pledged to accumulate $10B in Bitcoins to support the dollar peg.
TerraUSD retains its peg with a mechanism that moderates demand and supply through a process that is complex and involves using Luna, the other balancing token.
Luna Foundation tweeted it would continue to defend the dollar peg of UST with the help of $1.5B as loans to OTC trading firms. 50% of these will be in Bitcoins while the other half will be in TerraUSD.
Representatives of both LFG and Terra couldn’t be contacted for comments on the latest development. Other stablecoins in the top ten list of cryptocurrencies have not been affected as much as they are backed by real assets. Terra on the other hand is suffering from its dependence on Bitcoin as a reserve.