Controversial stablecoin UST — which is meant to be pegged to the dollar — plummets below 50 cents

cnbc.com:

In this article

The two main tokens from embattled crypto project Terra are now in freefall.

UST, a so-called stablecoin that's meant to maintain a $1 peg, plunged to as low as 31 cents Wednesday. It was last trading at less than 50 cents, according to CoinGecko data.

Sister token luna dived more than 80% to $5.10.

Bitcoin and ether saw more muted moves. Bitcoin fell 2% to around 31,169 while ether was down 1% at $2,365.

Stablecoins are akin to bank accounts for the crypto economy, offering a sound store of value to avoid the kind of volatility cryptocurrencies like bitcoin have become notorious for — in theory, at least.

UST is what's known as an «algorithmic» stablecoin. It uses a complex system of minting and burning tokens to adjust supply and stabilize prices. UST's price has crumbled under the pressure of a sell-off in cryptocurrencies recently, resulting in further panic in the market.

Do Kwon, the coin's creator, has amassed billions of dollars' worth of bitcoin through his Luna Foundation Guard fund to support UST in times of crisis. The fear now is that Luna Foundation Guard dumps those bitcoins onto the market, resulting in an even bigger sell-off.

Bitcoin briefly slumped below $30,000 late Monday, its lowest price since July 2021. The world's biggest digital coin is now hovering slightly above that level. It's fallen about 56% since setting an all-time high of nearly $69,000 in November.

David Moreno Darocas, a research analyst at CryptoCompare, said the situation highlights the «fragility» of algorithmic stablecoins like UST.

Santoli: Tech sector declines now have a life of their own, and crypto is along for the ride

Why Apple's stock performance could decide when and where the market hits bottom

RBC