TerraUSD, a subsidiary of the business behind the defunct stablecoin, announced yesterday that it had spent the majority of its reserves last week defending its dollar peg and would use what was left to repay certain users who had lost out.
The token’s demise last week sent cryptocurrencies falling, a trend that continued yesterday, with bitcoin giving up its weekend gains to trade just below $30,000.
Cryptocurrency markets were rocked by the spectacular collapse of TerraUSD, a so-called stablecoin that lost its 1:1 dollar peg. TerraUSD was trading around 5 cents at 1647 GMT yesterday, according to CoinGecko pricing.
Luna Foundation Guard (LFG), a Singapore-based non-profit organization designed to maintain TerraUSD’s price, had been building large reserves of cryptocurrencies including over 80,000 bitcoin, to support the peg. The value of the reserves hit $4 billion on May 3, according to LFG data.
However, LFG alleged in a series of tweets that it had spent the majority of its bitcoin last week in a futile bid to keep TerraUSD afloat as it fell apart.
LFG stated it would now utilize whatever reserves it had left to reimburse remaining TerraUSD customers, beginning with the smallest holders, but it had not yet decided on the best means to do so.
According to LFG’s data, the remaining coins in the reserve were valued a little under $90 million.
According to blockchain analytics firm Elliptic, holders of the TerraUSD coin and a related token, luna, have lost about $42 billion in the last week.
“There seems to be little hope for those hoping that some of the reserves could be used to compensate users of the stablecoin – since so little of it remains,” said Tom Robinson, chief scientist and co-founder at Elliptic.
“Of course, we will wait to see whether LFG can provide proof to back up their statements.”
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 in a consistent and suitable manner across jurisdictions.
Stablecoins, which he claimed were misnamed, was one of the causes of risk, he said.
Stablecoins, according to Fabio Panetta, a member of the European Central Bank’s executive board, are subject 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 6.1 percent to roughly $2,000 USD.