TerraUSD Dropped from Cryptocurrency Exchanges Following Collapse
The demise of TerraUSD, an “algorithmic stablecoin” whose downfall instigated a significant selloff in the crypto market, has resulted in its blockchain being deactivated and its removal from major exchanges, effectively marking the end of the project.
While the collapse of TerraUSD once caused ripples valued at over $40 billion, its broader repercussions seem to have been contained.
The cryptocurrency market experienced tremors on Thursday when tether, the leading stablecoin, deviated from its dollar peg. However, by Friday, tether had almost fully restored its $1 peg and smoothly processed withdrawals totaling over $3 billion.
Bitcoin and Ethereum, the cornerstones of the crypto realm, have rebounded from their recent lows. Bitcoin now trades above $30,000, up from $27,000, while Ethereum stands at $2,000, climbing from $1,700. Nonetheless, both cryptocurrencies remain significantly below their week’s starting points.
Fitch Ratings warns that Terra’s collapse could set off a chain reaction, affecting other entities within the decentralized finance sector. Anchor, a prominent savings and lending protocol, witnessed extensive liquidation of UST-collateralized loans, and the pricing of various crypto tokens also felt the impact.
Stablecoins are designed to uphold a fixed value, typically $1 per coin. However, “algorithmic” stablecoins like Terra adjust their value based on demand, a mechanism criticized for its resemblance to Ponzi schemes and susceptibility to confidence loss.
This downward spiral has rendered Terra’s tokens nearly worthless. UST, the stablecoin, now trades at under 20ยข, far from its intended value, while Luna, the supporting token, plummeted from $81 to $0.00004 in just seven days.
The situation worsened when Terra’s stakeholders decided to disable the blockchain, leaving holders unable to receive rewards. Exchanges like Binance and FTX moved swiftly to restrict trading of the token to shield investors from further losses.
For some, like video game influencer KSI, the damage was already done. KSI invested over $3 million in Luna on Tuesday, only to see its value dwindle to less than $10.
Despite the fallout, the UK government remains committed to integrating stablecoins into the nation’s payment infrastructure.
“We aspire to position Britain as a global leader in crypto-asset technology,” a Treasury spokesperson declared. “Our regulatory framework aims to foster investment, innovation, and scalability while upholding financial stability and regulatory standards for safe and reliable use of new technologies.”
“We are taking concrete steps towards this goal by proposing a regulatory regime for crypto-assets, enacting legislation to regulate stablecoins in payments, and exploring avenues to enhance the competitiveness of the UK tax system to foster further growth in the crypto-asset market.”