Controversial stablecoin UST — which is meant to be pegged to the dollar — plummets below 50 cents

Bitcoin, the world’s largest cryptocurrency, has fallen over 50% since setting an all-time high of nearly $69,000 in November.

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The two main tokens from embattled crypto project Terra are now in freefall.

UST, a so-called stablecoin that’s meant to maintain a 1:1 peg with the U.S. dollar, plunged to as low as 31 cents Wednesday. It was last trading at less than 50 cents, according to CoinGecko data.

Sister token luna dived more than 80% to $3.78.

Bitcoin and ether saw more muted moves, initially falling before rising slightly. Bitcoin was up 1% at about $31,609 while ether rose 2% to $2,419.

Stablecoins are akin to bank accounts for the crypto economy, offering a sound store of value to avoid the kind of volatility cryptocurrencies like bitcoin have become notorious for — in theory, at least.

UST is what’s known as an “algorithmic” stablecoin. It uses a complex system of minting and burning tokens to adjust supply and stabilize prices. UST’s price has crumbled under the pressure of a sell-off in cryptocurrencies recently, resulting in further panic in the market.

Do Kwon, the coin’s creator, has amassed billions of dollars’ worth of bitcoin through his Luna Foundation Guard fund to support UST in times of crisis. The fear now is that Luna Foundation Guard dumps those bitcoins onto the market, resulting in an even bigger sell-off.

Bitcoin briefly slumped below $30,000 late Monday, its lowest price since July 2021. The world’s biggest digital coin is now hovering slightly above that level. It’s fallen over 50% since setting an all-time high of nearly $69,000 in November.

David Moreno Darocas, a research analyst at CryptoCompare, said the situation highlights the “fragility” of algorithmic stablecoins like UST.

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“UST has grown to be both an integral and controversial piece of the crypto ecosystem,” he said.

The phenomenon is still relatively new. But UST has grown to become a major player in the crypto economy, with a circulating supply of 16 billion tokens.

Investors are now closely watching for how Luna Foundation Guard responds to prop up its ailing stablecoin. Kwon said Tuesday he was “close to announcing a recovery plan” for UST. “Hang tight,” he tweeted.

Elsewhere, crypto traders were also rattled by concerns over Coinbase’s financial health.

CEO Brian Armstrong clarified Tuesday that there was “no risk of bankruptcy” for the crypto exchange even as digital currency prices slide.

“For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event,” he said in a series of tweets. “We should have had these in place previously, so let me apologize for that.”

Coinbase shares were down 19% in pre-market trading Wednesday after the company reported a 27% slide in first-quarter revenue.

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