Early this year, the non-profit Luna Foundation Guard, a subsidiary of Terraform Labs, which is responsible for TerraUSD, announced its intention to raise at least $10 billion in bitcoin to sustain the crypto token peg with the United States dollar.
Siddharth Menon, COO of WazirX cryptocurrency exchange, explained the reason behind the decline
“Terra(LUNA) seems to have had a tumultuous week, with the token plummeting at an astounding rate, nose-diving from a fairly constant price of $88 to a low of $1. Initially, the crisis occurred when Terra’s algorithmic-based stable coin TerraUSD(UST), which is pegged to the greenback, had a dramatic decline to around $0.6. As a result, Binance, arguably the largest cryptocurrency exchange globally, has temporarily suspended the withdrawal of UST and LUNA. All of this had a cascade impact on the price of LUNA, sparking a huge sell off. A break underneath the ascending channel formation has occurred on the daily chart of LUNA. At $4, it is possible to anticipate quick support.”
Following a break of its 1:1 peg to the US dollar on Tuesday, TerraUSD plunged to a low of 67 cents, as per market data provider CoinGecko, before recovering marginally by Tuesday afternoon to reach 91 cents.
TerraUSD, in contrast to the rest of the stablecoins that have reserves in conventional assets, holds its peg by an algorithm that controls supply and demand in a sophisticated manner through the use of another balancing crypto-token, Luna.
Over the last month, crypto assets have lost about $800 billion in market value, matching a decline in stocks on concerns about vigorous interest rate rises throughout the world to fight off decades-high inflation, according to Bloomberg. The crypto slump comes as central banks tighten monetary policy in order to contain soaring inflation, reduce liquidity, and drive investors away from risky assets on worldwide stock exchanges.