Why UST threatens the bitcoin and cryptocurrency market?

Why UST threatens the bitcoin and cryptocurrency market?

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Answer Why UST threatens the bitcoin and cryptocurrency market?

The cryptocurrency market was spooked Wednesday, after the stablecoin “UST” plunged to its lowest level in its history at 30 cents.

USD TERRA is down about 9% to $0.427965, while Luna is down nearly 97% to $0.3979 at the time of writing, according to CoinGecko, a staggering 99% down from the April 5 high of $119.98.

UST briefly lost its peg to the dollar over the weekend, sending Luna down as well.

What are stablecoins?

Stable coins are cryptocurrencies that attempt to provide price stability and are backed by a reserve asset.

UST and Luna are the two main tokens of the Terra Protocol, a decentralized and open source public blockchain protocol for so-called algorithmic stablecoins, backed by computer code rather than collateral.

Read:China controls Bitcoin mining by 50% … Find out the percentages of other countries

What happened to “UST”?

UST plays the same role as stablecoins as Tether, which tracks the price of the dollar, but unlike Tether and other stablecoins, there are no traditional assets such as cash or Treasuries in reserve to back it up.

UST is created by destroying its sister token, Luna via smart contracts, and is not dependent on any third party, and vice versa: Luna is minted by burning UST and other stablecoins supported by the Terra ecosystem.

Luna is the local government system of the Terra ecosystem, the currency peg to the US dollar is based on the mechanism of creating and burning the coins along with Luna, basically, investors can swap one “UST” for one dollar of Luna, and they destroy or burn the “UST”.

Loss of confidence in a stablecoin such as “UST” poses a major threat to the Bitcoin and cryptocurrency market, as stablecoins pegged to the dollar are seen in the cryptocurrency market as not safe from the risk of collapse, prompting thousands of users to withdraw their investment from the market.

Read:Institutional Investors Buy $2.8 Billion of Bitcoin Through ‘Grayscale’ in Late 2020

Read also:

Why has bitcoin fallen 55% over the past six months?

What determines the price of Bitcoin?

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