Terra (LUNA)’s price collapse from Monday continues, now tracing down beneath $16 per coin. Meanwhile, the network’s dollar-pegged stablecoin TerraUSD (UST) continues trading at just $0.8, far below its intended $1.00 value peg.
LUNA trades at $15.84 as of the writing date, down 63.13% over the last 24 hours and 80.74% during the week.
The Terra blockchain’s governance token, the cryptocurrency doubles as the reserve asset to ensure stability for its stablecoins.
The most popular stablecoin – TerraUSD – began drifting off of its dollar peg on Sunday, as noted Luna Foundation Guard (LFG). To fix the problem, the organization tried deploying some of its Bitcoin reserves on the market to prop up UST’s price.
These reserves failed to save the stablecoin. Its value plummeted as low $0.69.
Its crushed value has created an enormous arbitrage opportunity within Terra ecosystem. Every UST can be converted for approximately one dollar of LUNA. This incentivizes traders to trade in their stablecoins, and then dump their LUNA shortly afterwards for a profit.
This has likely contributed to the death spiral of LUNA’s price, which has fallen substantially even next to other bleeding cryptos. Compared to this, Bitcoin and Ethereum have fallen by only 18% and 17% respectively this week.
Amid the chaos, Binance was forced to halt UST withdrawals from exchanges, citing “network slowness and congestion”.
Janet Yellen – Treasury Secretary of the United States – even made mention of TerraUSD’s de-pegging during a senate hearing today. She believes it illustrates how stablecoins pose “risks to financial stability” and “need a [regulatory] framework”.
Terra is currently the 20th largest cryptocurrency by market capital, despite having been in the top 10 for just a few days.
Terra co-founder Do Kwon stated today that he will soon unveil a plan to recover UST’s peg.