Cryptocurrency TerraUSD Plunges as Investors Bail
Categories: Crypto News US
TerraUSD traded as low as 23 cents Wednesday, according to data from CoinDesk. As of about 5 p.m. ET, it had rebounded partially to about 67 cents in volatile trading.A stablecoin, this breed of cryptocurrencies had gained favor among traders for being the one part of the crypto universe that was known for its stability. While the most popular stablecoins maintain their levels with assets that include dollar-denominated debt and cash, TerraUSD is what is known as an algorithmic stablecoin, which relies on financial engineering to maintain its link to the dollar. The break in TerraUSD’s peg began over the weekend with a series of large withdrawals of TerraUSD from Anchor Protocol, a sort of decentralized bank for crypto investors.Anchor Protocol is built on the technology of the same Terra blockchain network that TerraUSD is based on. It had been a major factor in the growth of the stablecoin in recent months by allowing crypto investors to earn returns of nearly 20% annually by lending out their TerraUSD holdings.TerraUSD’s fall to 23 cents at around 3:30 a.m. ET marked a 70% drop from its value 24 hours earlier, according to CoinDesk. Even as TerraUSD began regaining some value after hitting its low, Luna continued to fall. The token was down about 95% from the previous 24 hours at around 5 p.m. ET, trading at $1.16.In the past, TerraUSD maintained its $1 price by relying on traders who acted as its backstop. When it fell below the peg, traders would burn the stablecoin—removing it from circulation—by exchanging TerraUSD for $1 worth of new units of Luna. That action reduced the supply of TerraUSD and raised its price.Earlier this week, the foundation said it lent $750 million of bitcoin to trading firms to protect the stablecoin’s peg. Blockchain records of the foundation’s wallet show that it no longer holds bitcoin in that account.The previous day, TerraUSD’s value had rebounded to about 90 cents after falling to 61 cents, while Luna had also recovered after plunging.