The Wall Street Journal (WSJ) reported on the 11th (local time) that cryptocurrency around the world is plunging as investors bail, with stable coin TerraUSD (UST) once 70% and sister coin Luna plunging 95%.
UST, a pegged stable coin for a dollar, once plunged 70 percent to 23 cents. As of 6 a.m. on the 12th, it recorded 71 cents. Sister coin Luna once plunged 95 percent.
CEO Kwon Do-hyung, founder of Terra, tweeted, “I understand that the last 72 hours have been very difficult for all of you. I want to let you know that I am determined to be with you all to overcome this crisis, and we will make a way to overcome it.”
Stable coins are usually pegged one-on-one with government-issued currencies such as dollars. However, unlike traditional stable coins, UST adopts a different algorithm.
Other stable coin issuers hold dollar bonds or bills as reserve assets to maintain a one-on-one peg.
However, UST holds cryptocurrency as a reserve asset. It maintains dollar pegs through relationships with cryptocurrency “Luna” whose value fluctuates.
Terra has bought about $3.5 billion worth of Bitcoin so far to maintain the value of cryptocurrency. Terra plans to increase its Bitcoin holdings to $10 billion. Bitcoin is held as a reserve.
However, as the bank run crisis occurred due to doubts about UST and prices plunged, concerns arose that Terra might be selling Bitcoin in large quantities to maintain the value of UST.
As a result, Bitcoin prices also plunged 8.5 percent to 28,314 dollars. In addition to Bitcoin, Ethereum is plunging 12% and Binancecoin is plunging 16%, respectively.
Martin Hiesboek, head of blockchain and encryption research at cryptocurrency platform Uphold, said, “People no longer believe in UST and Luna, and there is a ‘bank run’ that withdraws funds.” He added, “Stablecoin based on algorithms has never been successful,” WSJ said.