How did the Terra UST stablecoin crash shake up the markets? Terra Luna, which was worth $118 last month, fell to $0.09 yesterday.
This collapse also caused Terra’s stablecoin crypto asset TerraUSD (UST) to lose stability. Markets crashed as investors sold reserves of the most popular cryptocurrencies, including Bitcoin, out of fear.
According to BBC Turkish News; companies try to balance stablecoins with assets like the US dollar, for example, by equating 1 token to 1 dollar.
However, the UST stablecoin fell to $0.4, according to crypto site Coin Market Cap. Tether (USDT), the most widely used stablecoin, also lost its equivalence to the US dollar, falling to $0.95.
“FULL RESPONSE TO WHAT HAPPENED, PANIC”
Post-crisis, “#cryptocrash” (Crypto’s collapse) became one of the most used hashtags in Twitter and Google searches.
Right now, the combined market cap of all Crypto assets is $1.12 trillion. That’s about a third of what it was in November, and more than 35% of that loss happened in the past week.
According to Coin MarketCap, the value of one bitcoin, which currently equates to $27,000, has fallen to the lowest level seen since December 2020. The value of one bitcoin hit $70,000 late last year. . Ethereum, the second most valuable currency in the crypto world, has lost almost 20% in 24 hours.
Economist Frances Coppola said that in the panic caused by TerraUSD’s depreciation, “giant financial institutions are collectively selling their assets, while everyone is trying to get rid of their cryptocurrencies as quickly as possible.”
“That’s exactly what happened, it’s panic,” Coppola said. Terraform Labs, the company behind TerraUSD and Terra Luna, halted all transactions on the blockchain on Friday in a controversial and unexpected move.
In a statement shared on Twitter, the company said it took this step to determine the strategies “necessary for restructuring.”
“I understand that these last 72 hours have been very difficult for all of you – know that I am committed to working with each of you to get through this crisis,” tweeted Do Kwon, founder of Terraform Labs.
As the company plans to launch new cryptocurrencies to rally Terra Luna, some Twitter users who have lost a lot of money have asked the company for help.
Meanwhile, the company’s Discord (a platform investors often use to discuss developments in cryptocurrency markets) was locked after an announcement to “prevent new users from spreading fear, uncertainty and misinformation”.
A Tether official, on the other hand, issued a statement on Twitter, saying that they have enough liquidity reserves for all users wishing to convert their USDT into dollars.
In the statement from named official Paolo Ardoino, he said that Tether completed “all sale transactions between $1 million and $300 million” in the past 24 hours without any issues.
CALL FOR TIGHTER REGULATION
Authorities in many countries have called for legal regulation of stablecoins. US Treasury Secretary Janet Yellen said in a meeting with the Senate committee that the TerraUSD crash posed “risks to financial stability” and that an appropriate audit plan should be developed.
The UK Department of Finance issued a similar call last month, noting predictions that stablecoins will become “an increasingly common form of payment”.