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Treasury Secretary Janet Yellen highlights latest news on UST algorithmic stablecoin losing its dollar peg during Senate Banking Committee hearing.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. As inflation peaks, bitcoin traders should be wary of reading too much into data. "We definitely see significant risks here." But she said the dangers from stablecoins have already been detailed by the President’s Working Group on Financial Markets. She later said legislation to address crypto regulation would be "appropriate" this year. As inflation peaks, bitcoin traders should be wary of reading too much into data.

Terra's stablecoin UST, the poster child for decentralized assets tied to the US dollar, is off its peg by the most ever as its backbone, the LUNA token, ...

If the circulating UST is worth more than the market cap of LUNA, it’s not possible for all UST holders to redeem their tokens for $1 worth of LUNA if they wish to. Conversely, when UST trades above $1, investors can mint 1 UST with $1 worth of LUNA and sell the UST for a profit. Earlier today, the Luna Foundation Guard (LFG) deployed $1.5B of its reserves in an attempt to defend the UST peg. The resulting stampede for the exits is the dreaded ‘bank run’ scenario that has laid waste to numerous algorithmic stablecoins including the infamous implosion of Iron Finance last year. Developers have tried to create these self-regulating assets for years, with many crashing and burning along the way. In Terra’s case, 1 UST can always be redeemed for $1 worth of LUNA. This mechanism incentivizes arbitrageurs to buy UST when it trades under $1, redeem it for $1 worth of LUNA, and sell the LUNA for a profit.

Yellen said UST had "experienced a run" at a Senate Banking Committee hearing Tuesday. Photo: Stefani Reynolds/AFP/Getty Images.

But the stablecoin lost its peg over the weekend, dropping as low as $0.60. It's not clear what caused the stablecoin to lose its peg. The algorithmic stablecoin UST, which is on the Terra network, is designed to keep a one-to-one peg with the U.S. dollar.

Terra appears to be in crisis mode. In response to UST's instability issues, Binance has halted LUNA and UST withdrawals.

LFG then loaned out $1.5 billion from its reserves “to protect the UST peg,” but that did little to stop the latest catastrophe. Conversely, if UST’s price falls below $1, Terra users can burn it to mint $1 worth of LUNA. That reduces the supply, theoretically ensuring that it will return to a $1 value. Terra uses a dual token mechanism that incorporates LUNA and UST. If UST’s price ever exceeds $1, Terra users can burn $1 worth of LUNA to mint 1 UST, netting a small profit from the arbitrage in the process. UST continued to plummet in the hours following his post, while LUNA, Terra’s volatile token, briefly crashed to $23. It’s currently trading closer to $30, down 73.1% from its all-time high recorded on Apr. 5. The world’s top cryptocurrency exchange announced it had halted LUNA and UST withdrawals early Tuesday, responding to an unprecedented stablecoin crash that’s rocked the cryptocurrency market over the past few days. Terra’s flagship stablecoin, UST, lost its peg to the dollar yet again late Monday, falling below $0.95 and then plummeting as low as $0.62 on Binance hours later.

Decentralized exchanges offer more freedom for users, while centralized exchanges like Binance are catching flak for holding onto control. Binance's move to ...

Binance provides service to millions of users around the globe, and any purposeful choice to restrict access to any part of their service could prove to be detrimental to many users. With centralized exchanges like Binance, users find themselves at the mercy of Binance’s leadership without any say in the matter of their own money. Users are getting tired of being subject to the decisions of a single voice. Many have declared that this kind of decision-making hierarchy is a way of the past, proclaiming that since customers hold onto their own keys, they should be able to use those keys to get access to their coins when they want them. Much of the Binance community worldwide has expressed their disappointment about Binance’s decision to halt withdrawals for two of the most popular types of cryptocurrency. Will the promise of future restrictions cause Binance users to seek out other exchanges?

Binance temporarily suspended all withdrawals for LUNA and UST tokens citing a high volume of pending withdrawal transactions.

At the time of writing, UST maintains 10th position in the list with roughly $16.5 billion in market cap. At the same time, the BTC/UST trading pair on Binance reached highs of more than $42,000, while other Bitcoin dollar markets struggled to preserve $30,000, as reported by Cointelegraph. While acknowledging the possible inconvenience to its investors, Binance stated: We will not notify users in a further announcement.” On April 18, UST flipped Binance USD (BUSD) to become the third-largest stablecoin on the market after Tether ( USDT) and USD Coin ( USDC) based on market capitalization. As the crypto community still tries to decipher Terra’s ongoing pegging-de-pegging fiasco in relation to its stablecoin offering TerraUSD (UST), major crypto exchange Binance temporarily suspended the withdrawals for LUNA and UST on Tuesday.

A popular token pegged to the dollar dramatically collapsed on Monday, causing the crypto market capitalization to lose a staggering $300 billion.

It is also fair to wonder if or when there will ever be a successful algorithmic stablecoin. Of course, decentralization is a spectrum, so perhaps there is a middle ground between purely algorithmic tokens and the decentralized model. In UST’s world, LUNA is supposed to be a stabilizing mechanism to help return the price of UST back to $1 when it deviates. LUNA saw its market capitalization drop from over $30 billion to $10 billion in the past five days and its price is down 64% over this time frame. That said, those appear to be a paragon of stability when compared to UST. Instead of being backed 1:1 by tangible assets at a bank or custodian, UST uses a complicated setup with another token, LUNA, to try and maintain its peg. The report noted how stablecoins can be subject to runs on money market funds, especially during times of stress when the assets backing these tokens can become illiquid.

Treasury Secretary Janet Yellen is still calling for stablecoin legislation by the end of the year. In response to questioning on stablecoins from Senator ...

The President's Working Group report on stablecoins from November highlighted that failing congressional action, FSOC should take action to regulate crypto. Toomey, for his part, is behind a piece of legislation seeking to address non-algorithmic stablecoins. In response to questioning on stablecoins from Senator Pat Toomey (R-PA) at a May 10 hearing, Yellen confirmed that "it is important, even urgent" that Congress pass stablecoin legislation.

A 'stable' coin lost its peg over the weekend and pledged $1.5 billion in Bitcoin trying to stabilize. Here's how the algorithmic stablecoin was supposed to ...

As the UST stablecoin dropped, it brought its sister coin down with it. It (theoretically) maintains its dollar peg through an algorithm that encourages traders to take advantage of any price changes in the stablecoin. But he stops short of calling UST stable. The system relies on traders burning or creating tokens for profit to maintain its peg to the U.S. dollar. But after days of triage by LFG, the UST stablecoin still hasn’t regained its peg. Because there is less UST changing digital hands, the price should theoretically go up toward $1 again, maintaining the peg. This process works through UST’s pairing with its sister cryptocurrency, Luna. Every time a UST token is minted, the equivalent of $1 in Luna is burned, and vice versa. The idea behind stablecoins is that investors use them as a “safe” cryptocurrency asset. Lacking reserves puts UST in particular at the will of various assumptions, Clements said, including those that there will be ongoing interest in the use cases of UST and that there will always be enough traders with accurate price information taking advantage of when UST falls below a dollar to keep the stablecoin in check. On Saturday, the UST stablecoin lost its peg to the U.S. dollar and then again on Monday. As of Tuesday afternoon, the stablecoin was still off its dollar peg by about 10 cents. If the price of UST exceeds $1, traders are incentivized to burn Luna in exchange for a dollar in UST, which increases its supply and theoretically will eventually drop the price back to $1. They are tied to the price of a fiat currency like the U.S. dollar, so in theory, one stablecoin pegged to the dollar is always worth at least $1.

Treasury Secretary Janet Yellen pointed to a recent run on the stablecoin TerraUSD as evidence of the potential threat to financial stability posed by...

“A stablecoin known as TerraUSD experienced a run and declined in value,” Yellen said. Stablecoins are a type of cryptocurrency that aim to maintain a stable value relative to government-issued currencies like the U.S. dollar. Terra cofounder Do Kwan explained the move in a series of tweets: Terraform Labs couldn’t be reached for comment, though Kwon said on Twitter Tuesday that he is “close to announcing a recovery plan for UST.” “I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.” Treasury Secretary Janet Yellen pointed to a recent run on the stablecoin TerraUSD as evidence of the potential threat to financial stability posed by unregulated cryptocurrency markets during a Senate Banking Committee hearing Tuesday.

The Luna Foundation Guard has held talks with large investors with the aim of raising over $1 billion to shore up UST amid weakening sentiment in the crypto ...

A burning mechanism and the ability to always be able to sell $1 worth of LUNA for 1 UST are designed to keep it in check. On Monday, LFG announced it had lent $1.5 billion worth of bitcoin and UST to third-party trading firms. But UST dropped as low as $0.61 on Monday amid a wider sell-off in crypto markets, before recovering to $0.91 at the time of writing. © 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. The group is now looking to raise fresh capital from some of the industry’s largest investment firms and market makers, according to the sources. LFG had originally sought out to purchase as much as $10 billion in bitcoin to support the stablecoin's peg.