Luna, a digital token closely associated with stablecoin TerraUSD (UST) is now worth $0.
The current cryptocurrency meltdown, which has seen billions of dollars wiped off the market, is largely due to the crash of UST, which is supposed to be pegged one-to-one with the U.S. dollar but has unravelled in recent days and is now worth just $0.17 U.S.
UST and Luna are essentially linked. UST is dubbed an algorithmic stablecoin meaning its $1 peg is supposed to be governed by underlying code. That is fundamentally different to other stablecoins like Tether and USDC that are backed by real-world assets such as bonds. UST has no real-world reserves.
The UST algorithm works through a complex system of minting and burning tokens to maintain price stability. A UST token is created by destroying some of the cryptocurrency Luna to maintain the dollar peg.
But the extreme market volatility has put UST to the test, and it has been unable to maintain its peg to the greenback.
Adding further complications is the fact that the Terra blockchain that underpins UST and Luna stopped processing transactions twice in the less than 24 hours.
As a result, the price of Luna has plunged and is now worth nothing.
On top of the UST saga, cryptocurrency markets have been hit by several other headwinds, including higher inflation and interest rate hikes that have caused a selloff in global stock markets.
The price movements of cryptocurrencies have been closely correlated to technology stocks in recent weeks and months.
However, despite the turmoil, Bitcoin (BTC) is rebounding today (May 13), rising above $30,000 U.S. The world’s largest cryptocurrency is still down 16% in the last seven days.
