Funds held in DeFi apps on the Terra network have fallen by USD 140 million in value locked. Do Kwon, the co-founder of Terraform Labs, announced that he would seek additional external funding to make TerraUSD collateralized.
Although the future of Terra (LUNA) looked bright, the mechanisms that should have maintained its stability failed to do so. That situation led the DeFi apps on the Terra network to lose USD 28 billion.
Supporters of the TerraUSD (UST) project, a stablecoin pegged to the US dollar, hoped it would revolutionize traditional payment systems.
However, that hope waned in a few days as investors panicked and tried to withdraw their money. That caused a vicious, self-enforced bank run whose collapse bankrupted many investors and brought down the entire crypto market.
Jake Chervinsky, chief policy officer at the Blockchain Association, said this had been one of the worst weeks for cryptocurrencies. The official of the non-profit organization stressed that everyone would remember that situation for a long time.
The Price of DeFi Apps on Terra Also Suffer Losses
The price of LUNA collapsed at the same time as UST in what analysts describe as a death spiral. Investors liquidated their digital assets before the algorithmic stabilizer could take effect. The value of the sister token fell from around USD 86 to just 0.00013 US cents.
LUNA has plunged by around 100%, falling from over USD 80 per token. In that way, it has destroyed about USD 28 billion of market capitalization in days.
In addition, data indicate that funds held in DeFi apps on the Terra network have plummeted by USD 140 million in value locked. For example, the lending protocol Anchor (ANC), which had more than USD 17 billion, locked up just over USD 106 million.
Other Terra apps have seen similar percentage declines, like Lido (LDO), which fell by USD 10 billion. Meanwhile, Astroport (ASTRO) and Mars Protocol (MARS) experienced an improved reduction in Total Value Locked (TVL).
Terraform Labs Announces a Revival Plan to Rebuild UST
Do Kwon, the co-founder of Terraform Labs, the company behind LUNA, announced a revival plan. He said that the company would seek additional outside funding to rebuild TerraUSD for collateralization. In other words, they would use reserves to back it instead of relying on an algorithm to maintain its 1:1 peg to the US dollar.
Changpeng Zhao, the CEO of cryptocurrency exchange Binance, criticized the proposal of Kwon to reverse user transactions of his tokens. In addition, the executive said that a fork would not add any value to the Terra network.
However, Vitalik Buterin, the CEO of Ethereum, supports the proposal of Terra to prioritize the compensation of small investors. He considers that this would allow them to clear 99.6% of wallets and make their users feel better.
UST is trading at around USD 0.064297 and has accumulated a 12.6% gain over the last 24 hours. While its daily trading volume is above USD 283.54 million, its market capitalization is about USD 744.39 million. It occupies 8th place in the cryptocurrency ranking, according to CoinGecko.
By Alexander Salazar
