Stablecoin Terra falls as low as 30 cents on the dollar

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The so-called algorithmic stablecoin TerraUSD fell as low as 30 cents on the dollar on Wednesday, demonstrating in real-time the difficulties of the cryptocurrency community will have in providing an alternative to the traditional financial system.

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TerraUSD is a coin backed by another crypto, called Luna. The way it’s supposed to work is that when TerraUSD, or UST as it’s called, falls below $1, traders can exchange it for the equivalent of $1 of Luna.

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But Luna LUNAUSD,
-69.96%
is also in freefall.

What is an algorithmic stablecoin? Why is Terra in the news? Here’s what investors need to know.

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coinmarketcap

The Luna Foundation Guard earlier this week said it lent $1.5 billion, half in bitcoin, to help protect the peg.

Other stablecoins, such as Tether USDTUSD,

and USD Coin USDCUSD,
+0.01%,
have held their value.

Treasury Secretary Janet Yellen on Tuesday warned about the threat to financial stability from the unregulated cryptocurrency markets. “A stablecoin known as TerraUSD experienced a run and declined in value,” Yellen said. “I think that simply illustrates that this is a rapidly growing product, and that there are risks to financial stability, and we need a framework that’s appropriate.”

The largest crypto by market cap, bitcoin BTCUSD,
+0.17%,
slipped 1% on Thursday, and has dropped 34% this year.

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Credit: www.marketwatch.com /

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