The stablecoin TerraUSD briefly lost its dollar peg over the weekend, pulling down its sister token LUNA as well.
Cryptocurrency prices were falling Monday along with the stock market.
Frank Corva, cryptocurrency specialist with Finder, said fears of UST, the algorithmic stablecoin on the Terra blockchain that is pegged to the US dollar, losing its peg circulated online over the weekend, seemingly causing LUNA’s price to drop.
LUNA is Terra's native token and UST is Terra's stablecoin.
Corva said that during the past week massive withdrawals were made from Terra’s Anchor Protocol, a savings protocol through which investors can earn 18% yield on their UST.
"In what some thought of as a domino effect, a UST liquidity pool on Curve Finance that allows investors to swap stablecoins like USDT for UST with very low 'slippage', or price change before and after trade, quickly lost much of its UST liquidity," he said.
"This caused panic among investors, Corva said, "as Curve is one of the largest decentralized exchanges in the DeFi space, "and any irregularities with liquidity tend to incite a frenzy among investors."
UST was down nearly 2% to $0.979714 at last check, according to CoinGecko.
'Most of the Fear Abated'
"Luckily, UST only lost about one percent of its peg, he said. "Small moves like this to either the upside or downside are normal for stablecoins, and most of the fear around this issue has abated."
The Luna Foundation Guard, an organization created by Terra’s inventor Do Kwon, said in a series of tweets that it would loan $750 million worth of bitcoin to trading firms to help protect the peg and also loan $750 million in UST to accumulate bitcoin to help normalize the market.
"Now, moving into a new week for the crypto market," Corva said, "many investors are hoping that fears of greater capitulation in markets will turn out to be just as unfounded as fears of UST de-pegging."
David Lesperance, managing partner of immigration and tax adviser at Lesperance & Associates, said that Pat Toomey, the top Republican on the Senate banking committee, has warned "bad things will happen" if the fast-growing $180 billion stablecoin market isn't regulated soon.
"He has written a draft bill that would force those wanting to issue stablecoins to publicly disclose their reserves every month and submit to an audit every three months," he said. "However, the Biden administration wants to bar all but nationally regulated financial institutions from issuing stablecoins.
"If this comes to pass then the largest stablecoin tether, Circle's USDC and Terra's UST, would be legislated out of existence," Lesperance warned.
