UNSTABLE STABLECOIN What. A. Week. TerraUSD (UST), a cryptocurrency designed to always be worth $1, lost its peg to the dollar, falling to as low as 13 cents. UST’s sister asset, LUNA, worth $119.22 at its peak collapsed to almost $0 on Thursday. As of Friday morning, the token’s market capitalization stands at less than half a million dollars—a dramatic fall from $28 billion just a week ago. So, what happened? Last weekend, UST started to deviate from the peg as macro uncertainty continued to mount in light of the Fed’s 50bps interest rate increase and plunges in both stock and cryptocurrency markets. Investors’ loss of confidence in the asset appears to have triggered billions in withdrawals from the Anchor Protocol, a lending market that offered yields as high as 20% to users who deposit UST. Conspiracy theories started to spread like wildfire. The most popular rumor claimed that asset manager BlackRock and hedge fund giant Citadel Securities jointly borrowed 100,000 bitcoin (worth about $3 billion at current prices) from cryptocurrency exchange Gemini to purchase UST, only to dump it later causing the market to collapse. All three companies denied their involvement. The Terra blockchain, which supports UST and LUNA, halted twice on Thursday as the entities responsible for verifying transactions on the blockchain were looking to “come up with a plan to reconstitute” the network. Binance, the world’s largest crypto exchange, suspended spot trading for LUNA and UST against its own stablecoin BUSD. “In just a couple of days, the cryptocurrency market lost $300 billion in market capitalization. In total, the cascading liquidations wiped away almost $1 trillion worth of value in a month. Additionally, the world’s largest stablecoin and a centerpiece of global cryptocurrency trade, Tether, which unlike Terra claims to back its tokens with actual dollar reserves, also slipped away from its $1 peg on Thursday.” On Friday morning, cryptocurrencies started to recover, with bitcoin returning to the $30,000 mark and ether and other heavyweights posting double-digit percentage gains. |