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What you need to know about the controversial stablecoin worrying crypto markets
The sister token of controversial stablecoin TerraUSD is now basically worthless.
Luna plunged to $0 Friday, according to data from CoinGecko, marking a stunning collapse for a cryptocurrency that at one point was worth more than $100.
The demise of controversial stablecoin venture Terra has resulted in a meltdown in the crypto market, which erased billions of dollars in value in a single day.
TerraUSD or UST, is supposed to be pegged one-to-one with the U.S. dollar. UST has however lost its peg and on Friday was trading at around 12 cents, according to data from CoinGecko.
Bitcoin staged a rebound on Friday, jumping above $30,000 despite the ongoing woes of stablecoin TerraUSD which has caused panic in the crypto market. Investors likely took some comfort from news that tether, the world's biggest stablecoin, had regained its dollar peg after declining below $1 for several hours.
The world's largest cryptocurrency bitcoin was last trading at around $30,046.85, according to Coin Metrics data, up 5.3% after it dropped to levels not seen since late 2020 earlier this week.
However, the digital currency is still down more than 15% for the week.
What is UST?
UST and luna are linked. UST is dubbed an algorithmic stablecoin meaning its $1 peg is supposed to be governed by underlying code. That is fundamentally different to other stablecoins like tether and USDC which are backed by real-world assets such as bonds. UST has no real-world reserves.
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The UST algorithm works through a complex system of minting and burning tokens to maintain price stability. A UST token is created by destroying some of the related cryptocurrency luna to maintain the dollar peg.
But the extreme market volatility has put UST to the test and it has been unable to maintain the peg.
Adding further complications is the fact that the Terra blockchain which underpins UST and luna stopped processing transactions twice in less than 24 hours.
Meanwhile, Binance, the world's largest crypto exchange, temporarily delisted UST and luna Friday.
Binance CEO Changpeng Zhao said that while the firm "always aims to be neutral," it "will break that rule this time."
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However, as of 10:30 a.m. ET, trading in UST and luna had resumed on Binance.
It comes after Terra announced it would resume the verification of new transactions on the blockchain, but would no longer allow direct transfer through the network. Users are being encouraged to use other channels to do so instead.
On top of the UST saga, crypto markets have been hit by a number of other headwinds including higher inflation and interest rate hikes that have caused a sell-off in global stock markets which has filtered through. The price movements of cryptocurrencies have been correlated to stock markets.
"The Luna/UST situation has hit market confidence quite badly. Overall most cryptocurrencies are down [more than] 50%. Combining this with global inflation and growth fears, does not bode well in general for crypto," said Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
Even the big bitcoin rebound may not be sustainable.
"In such markets, its normal to see bounces amounting to 10-30%. These are normally bear market bounces, testing previous support levels as resistance," Ayyar said.
FAQs
Luna, the cryptocurrency associated with TerraUSD, or UST, is now worth $0 as the stablecoin has dramatically lost its $1 peg. The Terra network stopped processing transactions twice in 24 hours. Binance, the world's largest crypto exchange, temporarily delisted UST and luna.
Why did Luna go to zero? ›
Why did the Terra (Luna) coin lose its value? The volatile Luna lost about 50% of its value because the stablecoin TerraUSD issued by the same company failed to keep the value $1 and dropped up to 30%. That showed that the whole company was in trouble.
Did Luna cause the crypto crash? ›
LUNA and UST construct the basic ecosystem of the Terra blockchain, which makes them highly dependent on each other. In other words, the depeg of UST can drive risk in the Terra ecosystem, which was what eventually lead to the shocking crash of the Terra-LUNA project.
Why is Luna coin dropping? ›
A stablecoin is linked to an underlying asset, such as precious metal such as gold, or the US dollar. UST has recently 'de-pegged' to $0.45 from its value of $1. This marked a drop of about 55 percent. Since both UST and LUNA are interlinked, the massive drop in UST value has resulted in LUNA's overall drop.
What crypto crashed to zero? ›
Collapse of Terra-Luna
This was supposed to be pegged to the US dollar via a complex algorithmic relationship with its support coin Luna. The loss of the peg resulted in Luna falling to almost zero, down from its high of $119.51.
Will Luna coin recover? ›
Terra's (LUNA) price has recovered since hitting an all-time low on July 5, 2024. The platform has been on a downward spiral since it was relaunched in May last year. Our price predictions suggest Terra is mired in a long-term downward trend.
Why did Luna lose all its value? ›
As the price of UST fell, more LUNA had to be issued for each burned UST, leading to new LUNA tokens flooding the market. The circulating supply of LUNA skyrocketed from 380 million tokens on May 10 to 6.5 trillion tokens by May 13, and with no demand for the unending supply, everything came crashing down.
What will happen to old Luna coin? ›
The situation worsened when crypto exchanges started delisting Luna and UST pairings in response to the depegging and the freefall of Luna's value. This move effectively stranded Luna, leading to its abandonment as it became virtually worthless.
What happened to Luna and Ust? ›
As users exchanged UST for LUNA, the price of LUNA precipitously fell leading to increasing dilution, which further depressed the price of LUNA and resulted in a dramatic “death spiral” where over just three days, the LUNA supply increased from 1 billion to 6 trillion and the LUNA price decreased from $80 to almost ...
Does Luna coin have a future? ›
According to our LUNA price forecast and technical analysis, the coin will continue the uptrend at a great rate for the year 2029. The potential high may trade around $5.36, while the potential low may be $3.72.
Do Kwon co-founded Terraform Labs Pte. Ltd. in January 2018 with entrepreneur Daniel Shin. Later in 2018, Terraform Labs released a cryptocurrency called Luna.
Do you owe money if your crypto goes negative? ›
Despite the risks involved, shorting crypto has advantages, making it a high-risk, high-reward strategy. So, answering if a crypto goes negative, do you owe money? You may have to pay the buyer to sell if the crypto value goes negative when you sell off the bought cryptocurrency.
What is the biggest drop in crypto history? ›
June 2011 - 99.9% Price Crash:
BTC rose from $2 to $32 in the first half of that year. Then, on June 19th, 2011, BTC was trading at $17.50 when Mt. Gox was hacked, causing Bitcoin to be sold for a single penny. This 99.9% price crash was probably the worst in crypto history.
Why did Luna run away? ›
Despite her pacifist views, Luna is a strong fighter. She claims she would have won her conclave if she hadn't fled. She killed her brother during the conclave, which may have influenced her views and her decision to flee.
What happened to Luna Luna? ›
The eighteen month-long run was to be a gift from the Stephen and Mary Birch Foundation, based in Wilmington, Delaware. Ensuing litigation due to a claimed breach of contract prevented Luna Luna from being exhibited. The entire exhibit was packed into 44 shipping containers and stored on a desert ranch in Texas.
Who brought down Luna? ›
The Luna crypto crash was caused by its connection to TerraUSD (UST), the algorithmic stablecoin of the Terra network. On May 7, over $2 billion worth of UST was unstaked (taken off the Anchor Protocol), and hundreds of millions of it were quickly liquidated.
