Terra’s dollar-pegged stablecoin, terraUSD (UST), “depegged” for the second time this week, dropping to as low as US$0.6841 in Tuesday morning trading in Asia, according to CoinMarketCap. It has since recovered slightly.
See related article: What are stablecoins, and why are some governments so afraid of them?
Fast facts
- Terra’s price also dropped by over 60% of its value since late last week, resulting in a market capitalization of US$11.5 billion, less than that of its own UST.
- UST is an algorithmic stablecoin of the Terra network, which uses the native token LUNA as collateral to peg the UST to the U.S. dollar.
- Smart contracts are reportedly used to control the supply of LUNA to maintain the UST’s dollar peg.
- As Terra’s market cap is now less than UST, there is likely not enough capital to back the underlying token, affecting the peg.
- The Luna Foundation Guard on Sunday said it would lend US$750 million of its Bitcoin reserves to stabilize UST’s price following the depegging when UST’s value fell under US$0.99.
- The rest of the crypto market was also down as Bitcoin briefly dropped below the US$30,000 mark for the first time since July last year before recovering to US$30,674 at press time.
See related article: Terra founder bets millions on LUNA’s annual growth