The so-called algorithmic stablecoin TerraUSD fell as low as 30 cents on the dollar on Wednesday, demonstrating in real time the struggles the cryptocurrency community will have in providing an alternative to the traditional financial system.
TerraUSD is a coin backed by another crypto, called Luna. The way it’s supposed to work is that when TerraUSD, or UST as it’s known, drops below $1, traders can trade it for the $1 equivalent of Luna.
But Luna LUNAUSD,
is also in freefall.
Earlier this week, the Luna Foundation Guard said it loaned $1.5 billion, half of it in bitcoin, to help protect the ankle.
Related: What is an algorithmic stablecoin? Why is Terra making headlines? Here’s what investors need to know.
Other stablecoins, such as Tether USDTUSD,
and USD Coin USDCUSD,
retained their value.
Treasury Secretary Janet Yellen warned on Tuesday of the threat to financial stability from unregulated cryptocurrency markets. “A stablecoin known as TerraUSD had a run and lost value,” Yellen said. “I think it just illustrates that this is a rapidly growing product and there are risks to financial stability, and we need an appropriate framework.”
Largest crypto by market cap, bitcoin BTCUSD,
slid 1% on Thursday and has fallen 34% this year.