Cryptocurrency $LUNA crashes as UST keeps falling

Cryptocurrency $LUNA crashes as UST keeps falling
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According to data from CoinGecko, $LUNA, the sistercoin of UST, which was once worth more than $100, plunged to $0 this Friday, launching an unstoppable crypto crash and erasing billions of dollars in value in a single day.

TerraUSD, which is also known as UST, which was pegged one-to-one with the U.S. dollar as a stablecoin, lost its peg on Friday and is now trading at around 12 cents. The Terra blockchain, underlying both $LUNA and UST also stopped processing transactions twice in less than 24 hours. 

As a consequence, Binance, the world’s largest crypto exchange, temporarily delisted UST and $LUNA that day. Binance CEO Changpeng Zhao said that while the firm “always aims to be neutral,” it “will break that rule this time.” 

However, trading in UST and $LUNA has since resumed on Binance. This comes after Terra announced that it would resume the verification of new transactions on the blockchain, but would no longer allow direct transfer through the network. Users are instead being encouraged to use other channels to trade.

Unlike tether and USDC, which are backed by real-world assets like bonds, UST has no real-world reserves, and is instead linked with $LUNA. That makes UST an algorithmic stablecoin, governed by underlying code to link it to a $1 peg.

The UST algorithm works through a complex system of minting and burning tokens to maintain price stability. That means that a UST token is created by destroying some of the related $LUNA to maintain the $1 peg.

The $LUNA crash was coupled with higher inflation and interest rate hikes, which caused a sell-off in global stock markets, sending several tokens spiralling.

“The Luna/UST situation has hit market confidence quite badly. Overall most cryptocurrencies are down [more than] 50%. Combining this with global inflation and growth fears, does not bode well in general for crypto,” said Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.

Bitcoin, however, which was down more than 15% that week, staged a rebound on the same day, jumping above $30,000. Tether, another stablecoin which is pegged to a dollar, also sunk as low as 95 cents on Thursday, but by Friday it was trading at $1 again.

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