Despite Its Name, Terra’s Stablecoin Value Plummets

Despite Its Name, Terra’s Stablecoin Value Plummets

In yet another case of stablecoins being less-than-stable, terraUSD (UST) plunged below its $US1 ($1.44) price peg for the first time since its inception. Bloomberg spotted the coin slipping to about 99 cents ($1.37) over the weekend, before plunging to roughly 60 cents ($0.83) on Monday night. As of this writing, Coindesk reports that the UST seems to be hovering between 92 cents ($1.28) and 98 cents ($1.36).

Terra — which was created back in 2018 following the massive bitcoin boom of the previous year — is what’s known as an “algorithmic” stablecoin. While your average stablecoin like, say, Tether, is typically backed by reserves of U.S. dollars to keep their prices from bouncing around the way typical bitcoin prices do, an algorithmic stablecoin like Terra is stabilised by, well, an algorithm. This algo is designed to allow traders to create new coins or destroy old ones as needed in order to maintain a steady price, which is supposed to keep the coins’ price from fluctuating too much.

What exactly caused Terra’s price to plummet isn’t exactly clear; crypto market aficionados told Bloomberg over the weekend that this disruption might have been caused by a surge in UST withdrawals by folks using popular crypto exchanges like Curve Finance. Per Bloomberg, roughly 121 million UST were pulled from Curve’s platform over the weekend — close to $US4 ($6) billion USD, altogether. In the ruckus that followed, the popular crypto exchange Binance suspended people’s ability to withdraw both UST and Luna, an associated token from Terra.

The official Terra Twitter account rebuked scuttlebutt in the crypto community that this death spiral might be the end for the currency. “Peg regaining takes time to do so given the parameters, but it bounces back,” the company tweeted. Meanwhile, the Luna Foundation Guard — a crypto nonprofit tasked with overseeing the stability of UST’s dollar peg — announced on Sunday that it would loan $US750 ($1,041) million in Bitcoin and 750 million UST to trading firms in an attempt to “proactively defend the stability of the $UST peg & broader Terra economy.” Godspeed, little coin.

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