Terra’s LUNA plunged to as low as $23.50 on the Binance exchange earlier today before regaining some ground.
At press time, the embattled cryptocurrency is trading at $28.
The flagship UST stablecoin plunged to an all-time low of $0.68 earlier today before slightly recovering to $0.80.
As reported by U.Today, the stablecoin briefly lost its peg on Sunday. After a short-lived recovery, things got much uglier for UST as Terra’s largest stablecoin completely lost its peg.
It is worth mentioning that UST is an algorithmic decentralized stablecoin, which means that its dollar peg is not maintained by centralized entities like Tether. The mechanism requires burning LUNA to mint UST (and vice versa).
Luna Foundation Guard has been busy deploying its vast Bitcoin reserves in an attempt to restore the stability of UST, but the stablecoin is still down 16.49% at press time. As it turned out, LFG’s Bitcoin reserves were not enough to help UST restore its dollar peg.
Cryptocurrency researcher Hasu has opined that UST isn’t actually decentralized since its collateral backing, which is used by a single party, is used to perform discretionary open market operations.
Making things worse
By using its Bitcoin reserves to defend its dollar peg, Terra also exacerbated the market crash. The world’s largest cryptocurrency plunged to a new yearly low of $29,731 earlier today.
For some, the writing was on the wall. FTX CEO Sam Bankman-Fried predicted that a stablecoin backed by volatile assets wouldn’t survive a big market crash.
UST is not the first stablecoin to fail. Last June, Iron Finance's algorithmic stablecoin, IRON, crashed to zero.