After one of the worst industry meltdowns, Binance, the largest cryptocurrency exchange in the world, has stopped Terraform Labs’ Terra (Luna), and TerraUSD (UST tokens) trading on its platform.After losing nearly 100% of their value within a few days, the exchange suspended all trading of Luna tokens and UST tokens across all its spot margins, cross margins, and isolated margins pairs.
Following the withdrawal of support for futures trading for the Luna token on Thursday, the move comes as Terraform Labs has increased circulating supply to over 6 trillion from 386million three days ago (according Terrascope, which tracks Terra stats), in an effort to push its sister token, a supposedly stablecoin to regain its 1-to-1 peg with the dollar.
Numerous other cryptocurrency exchanges, such as FTX, Crypto.com and KuCoin have taken immediate steps to address the issue.
Terraform Labs stated that it was halting Terra’s blockchain and is currently working on a “plan to reconstitute the network.” This is the second time this week that the Terra blockchain has been halted. Terraform Labs temporarily halted the network on Thursday to prevent hacks.
Due to flaws in Terra’s design, an exponential amount of new LUNA was created. Their validators have suspended the entire network, which has resulted in no withdrawals or deposits to any exchange,” stated Changpeng Zhao (founder and chief executive at Binance) in a Twitter thread.
“Some of our users were unaware that there was a large amount of newly minted LUNA outside of the exchange and started buying LUNA again without realizing that deposits will soon be allowed. This could lead to further price crashes. He stated that trading was suspended because of these serious risks.
TerraUSD, an algorithmic stablecoin that is also called “algorithmic”, aims to replace the dollar by intertwining and valuing Luna. If TerraUSD falls below $1, it can be “burned” to exchange for Luna’s dollar value and vice versa.
However, TerraUSD dropped below $1 earlier in the week. The reason for this is still unknown. This algorithmic vision was unable to see its limits and it tragically collapsed.
Luna’s price fell to $0.0000011, after it was down to $80 earlier in the week. At the time this article was published, UST had a value of 3 cents.
Terraform Labs has been trying to find solutions to the problem, including reportedly trying raise money. However, it has not had any luck. Sam Bankman-Fried (co-founder of exchange FTX) and investment and market-making firm Alameda Research said that he believed either UST or LUNA should go to 0 (or both).
“There is no way to save them both. It’s not clear that there is a way to save UST’s peg, even if you give up LUNA. Bankman-Fried said, “We will save it,” having previously helped to rescue another project (SushiSwap).
Binance’s Zhao is a prominent figure in the crypto industry and said that he was disappointed with the Terra team’s handling of the incident. We asked their team to restore network, recover UST peg, and burn extra minted LUNA. We haven’t received any positive or significant response so far.
The change in value of UST this week. (Image and data: Binance)
Zhu Su, cofounder and partner of Three Arrow Capital and an investor in Terraform, stated in a Twitter thread, “attacks and subsequent De-peg Risks were flagged by critics; fast-growing ecosystems should have done more for safety and slow growth.”
Su acknowledged that industry leaders had warned of such an attack in recent months. “The critics had real concerns about peg risk and going forward discussion must encourage, ‘FUD must be met with refutations. Growth must be organic, even if it is slower. He said that Terra is now in a DAO hacking moment.