Cryptocurrency TerraUSD Falls to 11 Cents, Creator Announces Rescue Plan

The price of stablecoin TerraUSD plummeted on Monday when the cryptocurrency’s creator announced plans to seek a rescue of the project.

The TerraUSD price, which was created to maintain the equivalent of a dollar, fell 36% at 11 cents, according to CoinMarketCap. Trading volume over the past 24 hours is $400 million lower, down from the over $5 billion volume it saw last week.

TerraUSD’s market value has dropped to $1.3 billion from nearly $19 billion earlier this year.

TerraUSD had a catastrophic downturn last week amid a broader market sell-off, falling below its $1 value. The crash has put pressure on the price of bitcoin and other cryptocurrencies, while wiping out the value of TerraUSD’s sister token, known as Luna. As a so-called algorithmic stablecoin, TerraUSD used Luna to keep its value at $1.

On Monday, Luna was trading down 15% at $0.0002, according to CoinMarketCap. Its total market value was around $1.4 billion as of Monday, according to CoinMarketCap. Earlier this year, Luna hit a record $41 billion.

On Monday afternoon, Do Kwon, the token’s founder, outlined what he calls a revival plan for Terra. The crux of the plan involves what is known as a “fork” in software jargon — essentially taking existing code and starting over with an updated version.

The new version will remove the algorithmic stablecoin and will distribute 1 billion tokens of the new version of Luna to existing owners and developers of Luna and TerraUSD.

Also on Monday, the nonprofit Luna Foundation Guard, which controls the reserve fund supporting stablecoins, Figure out the remaining reserves left after the collapse of TerraUSD. Among its assets, the group has 313 bitcoins, worth about $9.3 million at current prices.

On May 7, it had 80,400 bitcoins, worth about $3.5 billion. The group said the fund sold most of the bitcoin to protect the TerraUSD rate.

Overall, the team says it still has about $106 million in assets that it will use to offset the remaining TerraUSD holders, starting with the smallest holders. It did not provide specific details on how this compensation might work.

These moves did not have much of an impact in the broader crypto markets. None of the top 20 cryptocurrencies were up Monday afternoon, according to CoinDesk. Bitcoin is down 1.8% at $29,737 and ether is down 3.1% to $2,021.

The downturn in the crypto market has drawn scrutiny from regulators in the Biden administration, who are looking to develop policies to manage the asset class.

Rostin Behnam, head of the Commodity Futures Trading Commission, said in an interview with CNBC on Monday: “The reality is that we have a market-wide crisis over a single stablecoin… so… is a lesson for what can happen. He cited the potential for a “stimulus effect on traditional assets and traditional markets.”

Securities and Exchange Commission Chairman Gary Gensler warned investors on Monday that the cryptocurrency market is “a highly speculative asset class” lacking the disclosure that issuers stock or debt offers.

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