Cryptocurrency luna crashes to $0 as UST pulls away from dollar peg

The sister token of controversial stablecoin TerraUSD is now basically worthless.

Luna plunged to $0 on Friday, according to data from CoinGecko, marking a stunning slump for a cryptocurrency that at one point was worth over $100.

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The demise of controversial stablecoin firm Terra led to a crypto market crash, which erased billions of dollars in value in a single day.

TerraUSD or UST, is supposed to be pegged to the US dollar. The UST, however, lost its peg and was trading around 12 cents on Friday, according to data from CoinGecko.

Bitcoin staged a bounce on Friday, surging above $30,000 despite the continued woes of stablecoin TerraUSD which sent the crypto market into panic. Investors were likely reassured by the news that Tether, the world’s largest stablecoin, had regained its peg to the dollar after falling below $1 for several hours.

The world’s largest cryptocurrency bitcoin was last trading at around $30,046.85, according to data from Coin Metrics, up 5.3% after falling to levels not seen since late 2020. earlier this week.

However, the digital currency is still down over 15% for the week.

UST and Luna are related. UST is dubbed an algorithmic stablecoin, which means that its $1 peg is supposed to be governed by an underlying code. It is fundamentally different from other stablecoins like attached and USDC which are backed by real-world assets such as bonds. UST has no real reservations.

The UST algorithm works through a complex token minting and engraving system to maintain price stability. A UST token is created by destroying a portion of the associated cryptocurrency luna to maintain the peg to the dollar.

But the extreme market volatility tested the UST and it was unable to maintain the peg.

The fact that the Terra blockchain, which underpins UST and Luna, stopped processing transactions twice in less than 24 hours, adds further complications.

Meanwhile, Binance, the world’s largest crypto exchange, temporarily removed UST and luna from the list on Friday.

Binance CEO Changpeng Zhao said that while the company “always aims to be neutral,” it “will break that rule this time.”

However, as of 10:30 a.m. ET, UST and luna trading had resumed on Binance.

This comes after Terra announced that it would resume verifying new transactions on the blockchain, but would no longer allow direct transfer through the network. Users are encouraged to use other channels to do so instead.

In addition to the UST saga, crypto markets have been hit by a number of other headwinds, including a rise inflation and rising interest rates which caused a liquidation in global stock markets who filtered. Cryptocurrency price movements have been correlated with stock markets.

“The Luna/UST situation has hit market confidence pretty hard. Overall, most cryptocurrencies are down [more than] 50%. Combining this with global inflation and growth fears, does not bode well for crypto in general,” said Vijay Ayyar, vice president of business development and international at crypto exchange Luno.

Even bitcoin’s big bounce might not be sustainable.

“In such markets, it is normal to see bounces amounting to 10-30%. These are normally bear market bounces, testing previous support levels as resistance,” Ayyar said.