Huge Crypto Crash As All Fingers Point To Terra And Unreliable Stablecoin

One of the biggest risks associated with the crypto industry is volatility, a fact which numerous regulators have pointed out could be the downfall of the entire sector.

As such, a popular token has lost over 95% of its value, taking down a so-called stablecoin with it. This past Thursday, the LUNA token plummeted from a high of $118 last month to below $1 in one of the biggest market crashes in crypto history.

What happened?

The fall had an impact on TerraUSD (UST), a linked token and stablecoin. Normally, stablecoins would always retain their value of around $1 as they are pegged to the United States Dollar (USD), however UST has also crashed and lost its value by more than 50%. Because of this, panic has since gripped the market and investors are increasingly exiting major cryptocurrencies, sending prices tumbling throughout the market with even top projects such as Ethereum (ETH) and Cardano (ADA) feeling the effects.

Aside from basic economic causes, researchers believe the collapse of the TerraUSD stablecoin and its possible contagion impact was the primary cause of the recent cryptocurrency sell-off. Do Kwon, the CEO of Terraform Labs, largely remained silent on the whole issue, only vaguely stating that everything was under control, but his backers were understandably not convinced.

From bad to worse

To make matters worse, Binance is actively attempting to get rid of the currency due to its abrupt and quick collapse. Terra has also recently stated that they have ceased all operations on the blockchain, essentially rendering it defunct for the time being. LUNA withdrawals were suspended at first, however Binance has since announced that deposits and withdrawals will resume along with LUNA/BUSD and LUNA/UST spot trading pairs. The Binance team has however stated that extreme caution must nonetheless be exercised.

The exchange declared that it shall discontinue cross and isolated margin pairings, as well as spot trading pairs and BUSD margined perpetual contracts on the token, thereby officially discarding the once hugely popular cryptocurrency. It also changed the leverage and margin levels for LUNA-linked contracts, with the maximum leverage for holdings less than 50,000 set at 8 times. If the largest crypto exchange has to do this much to abandon a cryptocurrency, chances are that it just might be dead in the water.

What is next for Terra?

Do Kwon recently discussed a plan for  the recovery of UST and LUNA. The CEO proposed significant UST burning (1 billion in total) to lower the amount of the algorithmic stablecoin and sustain its $1 anchor. In theory, the massive UST burn would take the stablecoin out of circulation, thereby reducing selling pressure of the stablecoin.

Concurrently, as this unfolded, Bybit delisted LUNA/BTC, and eToro, which does not provide crypto futures trading or leverage, also removed LUNA/USD. Additionally, Crypto.com has reportedly delisted LUNA and suspended withdrawals as well. Needless to say, Terra needs a miracle at this point if the project wants to have any hopes of surviving now.