LUNA is bearing the brunt of a major turbulence taking shape in the broader crypto market.
The de-pegging of the UST stablecoin from the U.S. dollar has caused chaos on Satoshi Street. Tuesday morning, the UST price fell to $0.60, a 40 percent depeg from the USD. This has led to large liquidations of UST and Terra’s native coin, LUNA.
As a result, Binance chose to suspend withdrawals of LUNA and UST tokens because of “a significant volume of pending withdrawal transactions caused by network congestion.”
Tuesday morning, Asia time, traders observed that the orderbook for the two stablecoins appeared locked, with no orders being executed.
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BREAKING: #Binance has temporarily suspended withdrawals for $LUNA and $UST on the Terra Network.
— Watcher.Guru (@WatcherGuru) May 10, 2022
LUNA Caught In The Crossfire
According to Tweets, traders have been unable to sell UST for less than 70 cents.
LUNA is a victim of the ongoing cryptocurrency bloodbath. LUNA bulls are following the red tide as daily losses reach 14 percent. Similarly, the asset has experienced a 34% decline over the course of seven consecutive days.
According to the most recent price estimates from CoinMarketCap, UST has lost its dollar peg for the second time in three days, falling to $0.65 on Monday.
As of press time, LUNA has shed 60% of its value, retreating to under $25 for the first time since September last year.
Binance says the suspension of withdrawals is only temporary:
“Binance will reopen withdrawals for these tokens once the network is deemed reliable and the volume of pending withdrawals has decreased. We will not notify users in a further announcement,” the company stated.
Significant efforts have been made to provide UST with a badly needed shot in the arm.
LUNA total market cap at $12.26 billion on the daily chart | Source: TradingView.com
LFG To The Rescue
On May 9, Luna Foundation Guard (LFG), a Singapore-based nonprofit that was formed to support both Terra-based stablecoins and the broader Terra ecosystem, announced a plan to lend $1.5 billion worth of Bitcoin (BTC) and UST to third-party trading firms in order to provide support for UST’s peg. However, the price of UST has continued to fall relative to that of USDT.
The “depegging” appears to begin with a series of significant withdrawals from Anchor Protocol, a lending market that provides high rewards to users who deposit UST. Over the weekend, Anchor’s total UST deposits decreased from $14 billion to $11.2 billion.
Large amounts of UST were also removed from liquidity pools on Curve, a decentralized finance (DeFi) network that enables users to trade between stable currencies like as UST.
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The UST price fell to $0.60 Tuesday, a 40 percent depeg from the USD.
A single wallet dumped $84 million worth of UST on the Ethereum blockchain and $108 million on the Binance cryptocurrency exchange, adding a whiff of conspiracy to the previous day’s events.
This prompted allegations within the Terran community that the depeg was some sort of an “organized attack.”
Meanwhile, the key question here is that even if Terra manages to stabilize the issue, it will be tough to rebuild investors’ trust in the UST stablecoin.
Featured image from Coin Academy, chart from TradingView.com