The price of Terra’s algorithmic stablecoin, TerraUSD (UST), regained some of its losses against the US dollar on Tuesday, having dropped as low as $0.61 amid weakening sentiment in the broader cryptocurrency market.
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UST climbed to 0.92 against tether (USDT), a stablecoin that has kept its peg to the dollar, as of 8:55 a.m. ET, according to market data from Binance, which hosts the most traded market for the pair.
UST is an algorithmic stablecoin that attempts to keep parity with the dollar through its relationship with the LUNA token. A burning mechanism and the ability to always be able to sell $1 worth of LUNA for one UST are designed to keep it in check. Yet critics say the success of this operation depends on the strength of LUNA’s price and on its key DeFi platform, Anchor, continuing to produce an up to 20% yield to incentivize liquidity — something that’s on track to run out soon barring any fixes.
Both UST and the wider Terra ecosystem are supported by the Luna Foundation Guard (LFG), a Singapore-based nonprofit. In an attempt to defend the peg on Monday, LFG announced it had lent $1.5 billion worth of bitcoin and UST to third-party trading firms. LFG’s governing council includes Terraform Labs co-founder Do Kwon, Terraform Labs head of research Nicholas Platias and Jump Crypto president Kanav Kariya, among others.
UST, the third-largest stablecoin by total issuance, had fallen sharply on Monday amid a broader malaise in crypto prices that saw bitcoin drop below $30,000. Bitcoin is currently changing hands for about $32,000.
Meanwhile the price of Terra (LUNA), the Terra blockchain’s native asset that in normal market conditions can be burned in exchange for UST, has climbed to $33.63 from a low of $24.85, according to data provided by CoinGecko.
Crypto exchange Binance had earlier suspended withdrawals of LUNA and UST tokens, blaming “a high volume of pending withdrawal transactions” caused by network congestion.
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