The collapse of stablecoin sends tokens plunging

LONDON (Parliament Politics Magazine) – The value of a popular cryptocurrency has dropped by 99 percent, taking down an as frequently referred to “stablecoin” with it.

On Thursday, the Terra Luna token plummeted from a high of $118 (£96) last month to $0.09.

The fall had an impact on TerraUSD, a linked token that is generally steady.

And, as a result, investors are fleeing key crypto-currencies, sending prices crashing.

Stablecoin firms want to keep their tokens at parity with assets like the US dollar, with one token equaling $1, for example.

According to Coin Market Cap, a trading website, TerraUSD plummeted to $0.4 on Thursday.

Tether, the most well-known stablecoin, has also lost its link to the US dollar peg- to an all $0.95, an all time low.

‘The panics’

On Twitter and Google Search, the term “cryptocrash” has been trending.

And the total market value of all crypto-currencies is now estimated to be $1.12 trillion, down over a third from November, with over a third of that loss occurring this week.

Bitcoin is now worth around $27,000, down from a high of roughly $70,000 late last year and its lowest value since December 2020.

Ethereum, the second most valuable cryptocurrency, has lost 20% of its value in the last 24 hours.

“What we used to call ‘the panics’ began with the collapse of TerraUSD, when huge financial institutions sold off large amounts of assets and everyone else attempted to get their money out as quickly as they could,” said economist Frances Coppola.

“Exactly what’s going on here is panic.”

He understood the last 72 hours had been tremendously difficult on everyone- know that he had been resolved to work with everyone to weather this crisis and they would build their way out of it, tweeted on Wednesday, the creator of Terraform Labs, the business behind TerraUSD and Terra Luna.

A proposal to shore up Terra Luna by producing extra tokens was outlined, however many Twitter users are pleading with the corporation for assistance after losing big sums.

Meanwhile, Discord server of the company which is a platform where investors gather to discuss concerns, posted a warning stating that it had been shut down so new people can’t come in and spread uncertainty, doubt, fear and misinformation. 

Tether’s chief technical officer used Twitter to reassure token holders that the company has sufficient financial reserves to compensate anyone who wanted to sell.

“[A] reminder that Tether is honouring [Tether] redemptions at $1 – $300 million redeemed in [the] last 24 hours, without a sweat drop,” Paolo Ardoino tweeted.

Strong regulation

Stablecoins have been proposed for regulation by officials and lawmakers in a number of countries.

In a Senate committee meeting on Tuesday, US Treasury Secretary Janet Yellen mentioned the TerraUSD collapse to call for more stringent regulation.

It simply illustrated that this was a rapidly developing product with financial stability issues, and they needed an adequate structure, she said.

Last month, the UK Treasury released a report outlining intentions to regulate stablecoins, which it projected will become a “widespread mode of payment.”