Terra LUNA Fallout Seems to See its Spillover Effect Limited. For Now

The blockchain behind the TerraUSB stablecoin stopped processing transactions for a second time in less than a day, with validators taking the step to "come up with a plan to reconstitute” the Terra network. The Luna cryptocurrency has sunk to near zero. On the heels of that, the largest crypto exchange Binance announced it was suspending spot trading in the token. The fallout for the wider crypto landscape seems to have been limited for now, with Bitcoin (BTCUSD) rising more than 7% to trade above $30,000 while Tether, the largest stablecoin, is about 0.1% below par with the dollar. Coinbase Global Inc. is facing a class action lawsuit in California over problems with another stablecoin, GYEN, in November last year.

Amidst worries that Tether, the world’s biggest stablecoin, was losing its 1-to-1 peg to the dollar, Paolo Ardoino stepped in to reassure investors. Tether’s chief technology officer emphasized that the private company behind the coin that plays a critical role in the crypto ecosystem had no problem with redemptions, including even a $600-million repayment in the last 24 hours. Ardoino spoke for an hour together with crypto pioneers Samson Mow, chief executive officer of Jan3, and Adam Back, CEO of Blockstream.

Soon after the Twitter Spaces ended, Tether – known as USDT – regained its peg, which briefly dropped to 94.55 cents earlier in the day, its lowest level since December 2020. Crypto markets slumped today partly on worries about the future of Tether, where traders park their funds in times of high volatility: About half of all Bitcoin is bought with USDT, per CryptoCompare. A much smaller stablecoin, TerraUSD, known as UST, collapsed this week, and many traders worried that others may follow. Some new crypto users also may have confused UST with USDT.