TerraUSD (UST) algorithmic stablecoin collapses

The TerraUSD algorithmic stablecoin collapsed, wiping out USD 55 billion of market capitalisation and leaving investors out of pocket.

It remains unclear what precipitated the collapse, with some blaming an acceleration of customer withdrawals spiralling into a de facto bank run, thereby destabilising the algorithmic balancing mechanism between TerraUSD and LUNA. 

Attempts by TerraLabs to save UST’s peg by selling almost all of its Bitcoin reserves for UST, as well as other strategies, failed to save the stablecoin. Other cryptocurrencies are tied to more stable assets, such as the US dollar or gold. 

The crisis fueled a credit crunch that saw hedge fund Three Arrows Capital (3AC) forced into liquidation, and cryptocurrency lender Celsius Network and crypto broker Voyager Digital filing for Chapter 11 bankruptcy. 

At the time of its collapse, TerraUSD had been the third largest stablecoin by market capitalisation, and Luna one of the ten largest cryptocurrencies.