On Monday, a subsidiary of the business behind the defunct stable coin. TerraUSD claimed it had spent the majority of its funds defending its dollar peg last week and would use the rest to pay certain users who had lost out.
The crash of the token last week sent cryptocurrencies tumbling, a trend that continued on Monday as bitcoin gave up its weekend gains. In Asian trade on Monday, the world’s largest cryptocurrency sank 5% to roughly $29,700, following stock market declines due to concerns about soaring inflation and rising interest rates. The stunning drop of TerraUSD, which is supposed to be pegged 1:1 to the dollar but is currently trading around 14 cents, has roiled crypto markets.
On Monday, the Luna Foundation Guard (LFG), a Singapore-based non-profit dedicated to defending TerraUSD, announced on Twitter that it would use its remaining assets to compensate remaining TerraUSD users, beginning with the smallest holders, though it had yet to determine the best method.
TerraUSD is being supported by large reserves by Luna Foundation Guard (LFG)
To support TerraUSD, the organization had built up a large reserve of over 80,000 bitcoin and millions of dollars worth of other stablecoins, the majority of which it said it had spent last week trying to prop up the token.
LFG had promised to raise $10 billion in bitcoin as a reserve. It tweeted that the reserve was now down to 313 bitcoin and other assets. Stablecoins and their function in the cryptosystem as a major medium for moving money between cryptocurrencies or converting balances to fiat cash have received a lot of attention as a result of the incident, notably from financial regulators.
Crypto assets might destabilize the international financial system, according to Bank of France Governor Francois Villeroy de Galhau, if they are not regulated and made interoperable consistently and suitably across jurisdictions.
Stablecoins, which he claimed were misnamed, was one of the causes of risk, he said. Separately, Fabio Panetta, a member of the European Central Bank’s executive board, cautioned on Monday that stablecoins were vulnerable to runs.
On May 12, Tether, the world’s largest stablecoin, briefly lost its 1:1 peg before regaining it. Tether, unlike TerraUSD, is backed by traditional asset reserves, according to its operating firm.
Bitcoin fell to $25,400 on the same day, its lowest level since December 2020, before recovering to $31,400 on Sunday. On Monday, the second-largest cryptocurrency, Ether, dropped 5.6 percent to roughly USD 2,000.
Regulators from other countries are also concerned. Stablecoins are vulnerable to investor runs, according to the US Federal Reserve, because they are backed by assets that could lose value or become illiquid in times of market stress.