Terra (UST, LUNA) Hasn’t Vanquished Crypto, But It Narrowly Evaded Disaster

The ascent of algorithmic stablecoins seemed unstoppable. Now, they find themselves grappling with an existential crisis.

Initial fears of Terra’s collapse spelling doom for the entire crypto landscape appear exaggerated. Had Terra’s downfall occurred a few months later amidst continued growth, it could have triggered a DeFi crisis akin to the events of 2008. However, it seems that high-profile algorithmic stablecoins are bearing the brunt of the fallout.

Commencing on May 9, Terraform Labs witnessed a tumultuous decline, with TerraUSD — a token primarily reliant on algorithms for supply adjustments, rather than collateral, to maintain parity with the US dollar — and its digital counterpart Luna, plummeting in value. Additionally, activity on the Terra blockchain was suspended twice within a short span. A mere month after hitting a peak of $119, Luna’s value now hovers near zero, while UST remains stagnant at around 20 cents.