Bitcoin has recovered from part of its decline today, jumping above $30,000, despite long-standing challenges with the TercoUSD stablecoin, the fall of which caused considerable panic in the cryptocurrency market. TerraUSD or UST in theory was supposed to be pegged to the US dollar and cost $1, but today its price has dropped to only 16 cents. As a result, the Luna token, closely linked to the UST, now costs $0.
UST and Luna are closely related. The UST is called an algorithmic stablecoin, which means that its binding to $1 must be guided by algorithms. This is fundamentally different from other stablecoins, such as Tether and USDC, which are backed by real assets such as bonds. While the UST has no real reserves.
The UST algorithm works through a sophisticated system of minting and recording tokens to maintain price stability. It is created by destroying part of the linked cryptocurrency Luna to support its pegging to the US dollar.
But the extreme volatility of the market has been a test for the UST, and no algorithm has been able to keep the cryptocurrency tied to the real one without the reserves that could provide it. An additional complication is the fact that the Terra blockchain, which underlies UST and Luna, has twice stopped processing transactions in less than 24 hours.
In addition to the UST saga, cryptocurrency markets have been hit by a number of other troubles, including higher inflation and rising interest rates, which have led to sell-offs in global stock markets. Changes in cryptocurrency prices are mainly related to stock markets.