TerraUSD Cryptocurrency Plunges as Investors Bail Out

TerraUSD’s peg break began over the weekend with a series of large TerraUSD withdrawals from Anchor Protocol, a sort of decentralized bank for crypto investors.


Photo:

Tiffany Hagler-Geard/Bloomberg News

A sell-off in a cryptocurrency believed to be pegged to $1 accelerated on Wednesday, sending its price below a quarter of that value.

TerraUSD traded at 24 cents on Wednesday, according to data from CoinDesk, wiping out more than $10 billion in market capitalization in a matter of hours. A so-called stablecoin, this breed of cryptocurrencies had won favor with traders for being the only part of the crypto universe that was revered for its stability.

While the most popular stablecoins maintain their levels with assets that include dollar-denominated debt and cash, TerraUSD is what is known as an algorithmic stablecoin, which relies on financial engineering to maintain its link to the dollar.

TerraUSD’s peg break began over the weekend with a series of large TerraUSD withdrawals from Anchor Protocol, a sort of decentralized bank for crypto investors.

Anchor Protocol is built on technology from the same Terra blockchain network that TerraUSD is based on. This had been a major factor in the growth of the stablecoin in recent months by allowing crypto investors to earn returns of almost 20% per year by lending their TerraUSD holdings.

At the same time, TerraUSD has also been sold for other traditional asset-backed stablecoins through various liquidity pools that help peg stability, as well as through cryptocurrency exchanges. The sudden outflow of silver spooked some traders who started selling TerraUSD and its sister token Luna.

TerraUSD’s drop to 24 cents marked a 70% drop from its value 24 hours prior, according to CoinDesk. Luna was trading at $4.62, a drop of 85% over the same period.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Elaine Yu at elaine.yu@wsj.com

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