The price of the Terra (LUNA) cryptocurrency fell 60%, under $25 for the first time since September 2021, as of press time. Following these developments, crypto exchange Binance announced that it was temporarily halting the withdrawal of LUNA and UST, algorithmic US dollar stablecoin.
Binance blames network congestion
In a statement today, Binance explained:
On May 10, 2022, withdrawals for LUNA and UST tokens on the Terra (LUNA) network were halted due to a large number of pending withdrawal actions. This is due to poor network performance and congestion.
On Tuesday morning, Asia time, traders stated that the order book for LUNA and UST appeared to be frozen, with no trades being processed.
Binance noted that they will reopen withdrawals for these tokens when they believe the network is stable and the number of pending withdrawals has decreased. They won’t notify users again in a future announcement and apologize for any trouble caused by this.
The UST bear market is one of the main causes that the Terra Network is considered dangerous. On May 10, UST fell to a low of $0.6841, pulling the price of Terra (LUNA) with it.
Luna Foundation Guard liquidates bitcoins
This is a crucial test for the Luna Foundation Guard (LFG), Terra’s parent organization. To stabilize its troubled UST stablecoin, LFG has started selling off its Bitcoin assets to buy UST.
The recent update by the Luna Foundation Guard, however, states that it has begun lending its Bitcoin assets to MMs. It added:
The LFG’s most recent deployment was a single withdrawal of roughly 37,000 BTC. It has been lent to MMs in a similar fashion to the previous deployment. However, because very little of the current clip has been spent, it is currently being utilized to acquire $UST.
The UST currency’s collapse has created significant network instability and uncertainty, resulting in a large number of pending withdrawals on Binance. Terra and UST investors and holders are panicking, further exacerbating the congestion.
It’s not yet known when, or if, the Terra Network will stabilize and UST will resume its peg to the dollar. The Luna Foundation Guard (LFG), who is in charge of maintaining UST’s peg to the dollar, has been active in damage control in order to avoid further losses and return the stablecoin back to $1.
The most significant concern is that no matter what Terra does to resolve it, regaining the investors’ confidence in its UST stablecoin will be difficult.