Terra stablecoin falls hard, blockchain stands still

After a turbulent week, the stablecoin market is falling. This cryptocurrency, which was supposed to remain fixed at one dollar, was trading ten times cheaper on Friday, the failures of this “stablecoin” intensified the earthquake that rocked the “crypto” market this week. Terra (UST), which traded at $1 at the beginning of the week, fell to about 10 cents, according to data from specialist website CoinGecko. Its developers, the Luna Foundation Guard, have announced on their Twitter account that they are suspending the “blockchain” that allows its transactions to be verified. A restart date has not been announced.

“Stablecoins” are cryptocurrencies like bitcoin because their transactions are verified by a decentralized ledger, the blockchain, but their issuers aim to stay at a fixed price against the dollar. Goal: To make them usable as a currency where bitcoin is too volatile to make payments. The largest of these (Tether, USD Coin and Binance USD, which account for 80% of that $180 billion stablecoin market in March, according to the Fed), are issued by companies that claim to have liquid or safe asset reserves. equivalent to issued stablecoins.

Same effect for the moon

Terra was the main “algorithmic stablecoin”: its creators guaranteed its stability through automatic arbitrage with their other cryptocurrency, Luna. A method that, in theory, should more closely match the decentralized spirit of the crypto world, with rules dictated by the algorithm rather than the issuer. Except that the cold that was blowing in the world markets caused the price of the moon to drop and made these arbitrages more and more difficult, to the point of impossibility. On Friday, the moon, which hit an all-time high of over $100 in April, traded for less than a cent.

Earlier this week, as terra-luna’s system began to falter, US Treasury Secretary Janet Yellen said the episode “simply illustrates the fact that this is a fast-growing product, that it poses risks to financial stability, and that we need an adequate foundation.” . The major cryptocurrencies rebounded on Friday (+6% for bitcoin at over $30,000). But the entire market remains in trouble, with a total value of less than $1.4 trillion versus more than $3,000 billion at its all-time high at the end of 2021.

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