TerraUSD, or UST, has been dragged into the spotlight in the last few days after the so-called stablecoin, which is supposed to be pegged one-to-one w

Cryptocurrency luna now almost worthless after controversial stablecoin it is linked to loses peg

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2022-05-12 17:30:08

TerraUSD, or UST, has been dragged into the spotlight in the last few days after the so-called stablecoin, which is supposed to be pegged one-to-one with the U.S. dollar, fell sharply below the $1 mark.

UST is an algorithmic stablecoin which uses code to maintain its price at around $1 based on a complex system of minting and burning. A UST token is created by destroying some of the related cryptocurrency luna to maintain the dollar peg.

Unlike rival stablecoins Tether and USD Coin, UST is not backed by any real-world assets such as bonds. Instead, the Luna Foundation Guard, a nonprofit created by Terra's founder Do Kwon, is holding about $3.5 billion of bitcoin in reserve.

Its peg has been lost and now investors are rushing to dump the associated luna token. Luna's price has plunged from around $85 a week ago to trade at around 3 cents on Thursday, according to data from CoinGecko, making the cryptocurrency almost worthless.

On Thursday, Binance, one of the world's largest cryptocurrency exchanges, said that the Terra network, the blockchain associated with the luna token, is "experiencing slowness and congestion." Binance said that as a result, there is a "high volume of pending Terra network withdrawal transactions" on its exchange, in a sign that investors are rushing to sell luna.