LUNA Nosedives A Staggering 60% As Binance Disables Terra Withdrawals — What’s Next For UST?

Source : zycrypto.com

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Global cryptocurrency exchange Binance announced Tuesday it had suspended withdrawals for Terra’s LUNA and its sister token UST. The firm’s actions come amid an extremely volatile period for LUNA and UST. UST, a so-called algorithmic stablecoin, slipped rapidly from its dollar price peg, plummeting to as low as $0.62 on Binance amid the crypto market rout.

Binance Pauses LUNA and UST Withdrawals

Binance said early Tuesday that it had discontinued UST and LUNA withdrawals for approximately six hours “due to a high volume of pending withdrawal transactions”, adding that “this is caused by network slowness and congestion.”

The exchange indicated that it would restore withdrawals for the two tokens once it felt that the network was stable and the volume of pending withdrawals had decreased.

Binance’s suspension of UST is noticeably a reactionary measure against the unprecedented stablecoin crash that has rocked the crypto market in recent days. UST presently trades at $0.9093 — well below the expected $1 price level.

Given how closely UST and LUNA are intertwined with the on-chain mint and burn mechanism, it’s no surprise that the stablecoin losing its dollar peg has had dire ripple effects.

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LUNA’s Shambolic Slump Exacerbated By UST Stablecoin Loosing Dollar Peg

TerraUSD (UST) is the market’s leading algorithmic stablecoin that works with LUNA to maintain a $1 price using Terra’s dual token mechanism.

Any time UST’s price goes above its dollar peg, Terra holders can burn $1 worth of LUNA to mint 1 UST. Similarly, if UST’s price sinks below $1, users can burn it to mint $1 worth of LUNA. This ensures that shrewd traders can bag some profits from the arbitrage while also destroying UST and theoretically creating more buying pressure for the decentralized stablecoin.

However, trouble has been brewing for Terra in recent days as UST repeatedly lost its dollar peg despite the Luna Foundation Guard (LFG) acquiring billions of dollars worth of bitcoin (BTC) to act as a reserve fund for the stablecoin. LFG also recently loaned out $1.5 billion of its BTC reserves to safeguard UST’s dollar peg, but that did little to end the turbulence in the Terra ecosystem.

After the de-pegging, the majority of investors rushed to swap UST for LUNA and sell it on the open markets. This even saw LUNA’s market cap plummet below that of UST, further jeopardizing the stablecoin’s whole stabilizing mechanism.

The significant selling pressure coupled with UST’s collapse and Binance limiting withdrawals are perhaps the main culprits for LUNA’s uncomfortably bearish short-term outlook. The non-stablecoin asset has lost over 65% of its value over the past 48 hours and is currently valued at $29.91. It now holds the fourteenth spot on the crypto market leaderboard.

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