The crypto market has taken another hit with the price of a stablecoin that’s designed to be pegged to the U.S. dollar falling well below $1.
The UST-Stablecoin, which is backed by $3.5 billion in reserves, lost nearly half its value on Tuesday, plummeting as low as $0.64 before rebounding to around $0.90. The drop comes amid an overall downturn in crypto prices that includes bitcoin losing more than 50% of its value since the beginning of 2019 and many other coins falling even further.
The situation is reminiscent of the 2018 collapse when bitcoin lost more than 70% of its value before bouncing back to new highs—but it also underscores how volatile cryptocurrencies remain despite efforts by many players to bring stability and regulation into the space.
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The token $UST, which is one algorithmic stablecoin available in the cryptocurrency market, has fallen to its lowest value in over two years.
Created by Do Kwon, who previously worked as an engineer at Google, the UST-Stablecoin is designed to be used as a reserve currency for its native ecosystem, Terra.
Kwon believes that bitcoin can become the “reserve currency” of the Terra ecosystem because it is more decentralized than other cryptocurrencies, but he believes that it needs more time before it can reach its full potential.
The problem seems to be that the people who invested in UST have been trying to redeem their tokens all at once, according to CryptoCompare research analyst David Moreno Darocas.
“This assumes normal market conditions,” said Moreno Darocas. “During periods of high volatility and one-sided buy/sell activity for UST, the above stabilizer may not be sufficient to maintain the peg in the short-term.”
This is not the first time that UST has decoupled from its $1 peg. It happened in May last year when the token fell below $1 amid an overall decline in crypto prices at the time, and it happened again in October last year when another drop in crypto prices forced UST’s price down to $0.99 cents.
But this doesn’t mean that UST won’t be able to maintain its value at its $1 peg in normal market conditions, said Darocas.
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