UST Terra stablecoin dips below $ 1 peg; cryptocurrency luna down 80%

The two main tokens of the crenellated Terra crypto project are now in free fall.

UST, a so-called stablecoin aiming to hold a $ 1 peg, plunged more than 60% on Wednesday from 24 hours earlier. It was trading for just 35 cents at 4am ET, according to data from CoinGecko.

Token sister luna is down more than 80% to $ 5.

Other cryptocurrencies have fallen alongside them, with bitcoin sinking 5% to $ 30,321 e ether down 4% to $ 2,286.

Stablecoins are similar to bank accounts for the crypto economy, offering a solid store of value to avoid the kind of volatility that cryptocurrencies like bitcoin have become famous for, at least in theory.

UST, the third largest stablecoin in the world, uses a complex token minting and burning system to regulate supply and stabilize prices. Its price recently plummeted under pressure from a cryptocurrency sell-off, causing further panic in the market.

Do Kwon, the creator of the coin, has accumulated billions of dollars worth of bitcoin through its Luna Foundation Guard fund to support the FSO in times of crisis. The fear now is that Luna Foundation Guard will dump those bitcoins on the market, causing an even bigger sell-off.

Bitcoin briefly plunged below $ 30,000 on Tuesday, the lowest level since July 2021. The world’s largest digital currency is now slightly above that level. It has dropped about 56% since it hit an all-time high of nearly $ 69,000 in November.

David Moreno Darocas, a research analyst at CryptoCompare, said the situation highlights the “fragility” of algorithmic stablecoins such as UST.

“UST has grown to be an integral and controversial piece of the crypto ecosystem,” he said.

The phenomenon is still relatively new. But UST has grown to be a major player in the cryptocurrency economy, with a circulating supply of nearly 17 billion tokens.

Investors are now watching closely how Luna Foundation Guard responds to support its ailing stablecoin. Kwon said Tuesday he was “close to announcing a recovery plan” for UST. “Hold on,” he tweeted.