Binance Stops Terra Trading. Luna and Its Stablecoin Are Down for the Count.

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Prices of Bitcoin and other cryptocurrencies have plunged this week.

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The loss of stablecoin TerraUSD’s peg to the dollar has fueled a selloff in cryptocurrencies this week and led to enormous losses for a related token, Luna.

On Friday, the situation worsened as Binance—the world’s largest digital-asset exchange—suspended trading of both TerraUSD and Luna.

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TerraUSD was trading below 10 cents on the dollar, down from around 50 cents on Thursday, while Luna changed hands at a tiny fraction of a penny. Just a week ago, Luna traded above $80 and had a market capitalization of around $27 billion. More than $18 billion was locked up in TerraUSD before the stablecoin began to lose its peg last weekend.

By Friday, Luna had a market capitalization hovering around $190 million—with 11.3 billion TerraUSD in circulation, according to crypto exchange Coinbase Global (COIN).

In a series of Tweets Announcing Binance’s suspension of the two tokens, Changpeng Zhao—the exchange’s co-founder and CEO, known as CZ—said he was “very disappointed” with how the incident was handled by the Terra team.

CZ said Binance made the decision to suspend the tokens after an “exponential” amount of Luna was created due to flaws with the cryptocurrency’s engineering, which came as the entire Terra network ground to a halt, preventing deposits or withdrawals.

“We requested their team to restore the network, burn the extra minted Luna, and recover the [TerraUSD] peg. So far, we have not gotten any positive response, or much response at all,” CZ said.

Terra didn’t immediately respond to a request for comment.

The Twitter (TWTR) feeds of Do Kwon, a cryptocurrency entrepreneur and Terra’s founder, as well as the Luna Foundation Guard—a non-profit that stockpiled crypto to protect the stablecoin—were silent Friday, after providing updates on the situation for much of the week.

TerraUSD’s meltdown has rocked cryptocurrency markets. As their name implies, stablecoins are meant to maintain a fixed value, often $1, and play an integral role in the crypto ecosystem by acting as digital cash and a source of surety in a world of volatility.

Unlike the largest stablecoins, USD Coin and Tether—which also briefly lost its peg midweek—TerraUSD is not backed by cash or other mainstream financial assets, instead relying on financial engineering as a so-called algorithmic stablecoin.

The Terra protocol allows traders to take advantage of an arbitrage opportunity when TerraUSD weakens below the value of a dollar. They can “burn” one TerraUSD for $1 worth of Luna, making a profit and taking a TerraUSD out of circulation when the token’s price slips below the dollar, or do the reverse when the TerraUSD strengthens.

But as billions of dollars of Terra were dumped on Saturday, it all came undone.

No amount of rescue, including the mobilization of tens of thousands of Bitcoin—billions of dollars worth of crypto—to try and restore the peg seemed to work. TerraUSD hovered around 50 cents through much of the week as Luna’s losses mounted. Both tokens continued to slump early Friday.

Write to Jack Denton at [email protected]


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