(Paris) The terra, a so-called stable cryptocurrency, supposed to be pegged to the US dollar, lost more than half of its value in 24 hours, sowing a wave of panic in an already feverish crypto-asset market.
According to the specialized site CoinGecko, the terra (UST), normally close to 1 dollar, fell on Wednesday to around 30 cents. It was trading in the early afternoon at 43 cents, down 53.5% from its price the previous day.
In principle, the price of a so-called stable cryptocurrency is linked to that of a traditional currency, which guarantees investors a certain durability in the very volatile world of cryptocurrencies.
But the stability of some of these cryptocurrencies is not ensured by currency reserves, but by an algorithm that makes arbitrages according to the supply and demand of another cryptocurrency.
This is the case of terra, which is backed by the cryptoasset developed by the Luna Foundation Guard, an organization that says it wants to “promote a decentralized economy”.
However, this digital token has itself tumbled since the start of the week under the impact of a wave of liquidations. It sank almost 95% Wednesday, to $1.69, according to CoinGecko.
Luna Foundation Guard announced on Monday that it has deployed the equivalent of $1.5 billion in bitcoins and terras to secure the stablecoin’s parity with the dollar with no immediate effect.
The creator of the terra, Do Kwon, assured Tuesday on Twitter that he was about to present a recovery plan for the cryptocurrency, but the price of the currency did not recover.
US Treasury Secretary Janet Yellen, speaking to the Senate Banking Committee on Tuesday, said the episode “just illustrates that this is a fast-growing product, that it poses risks to financial stability and that we need a proper framework”.
Stricter regulation of stablecoins would be a good thing in the long run, said Anto Paroian, chief operating officer of cryptocurrency hedge fund ARK36.
“But if stablecoin issuers are regulated as tightly as banks, it could suffocate one of the most innovative, successful and important sectors of the cryptocurrency market,” he worries. .
Cryptocurrencies as a whole have been suffering for several weeks from investors’ aversion to risky assets with the uncertainty created by the war in Ukraine and the continuation of inflation.
Bitcoin briefly dipped below $30,000 on Tuesday, its lowest since July.