On Friday morning, the Terra blockchain restarted its block production after halting it for the second time in a row on Thursday. The LUNA cryptocurrency saw a 99% drop in its price in the last 24 hours, which has now reached an astonishing low of $0.0000353 — effectively valued at nothing. Meanwhile, TerraUSD was down 69% Friday, now priced at $0.19. The dramatic crypto collapse also led to the world's largest crypto exchange by trading volume, Binance, to block trading of TerraUSD and LUNA on its platform entirely to mitigate risk.
During the first suspension, Terraform Labs said that it halted the blockchain at a block height of 7603700 “to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.” The concern drew from the higher probability of an entity easily sweeping in and purchasing LUNA at its extremely low rate (bordering on zero) to force a majority vote on the network to stage a takeover.
While the blockchain network was temporarily restricted from producing new blocks, its tokens TerraUSD and Luna were not permitted to trade.
After applying a patch and resuming blockchain activity, the second suspension on Thursday stemmed from the company looking for a "plan to reconstitute" the network. By Friday, however, things had restarted, although the company said it had disabled on-chain swaps and IBC channels.
TerraUSD has seen a dramatic plunge in price this past week, along with the network’s native token, LUNA. LUNA dipped to an all-time low, roiling the crypto markets and sending buyers into a selling frenzy. Now, TerraUSD has fallen in rank from the third-largest stablecoin by market capitalization to the 25th-largest stablecoin.
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The TerraUSD stablecoin always relied on its sister token LUNA for stability, allowing the stablecoin be replaced with LUNA any time TerraUSD dipped below $1. Recent events showed that it’s not possible for TerraUSD and LUNA to support each other, and the algorithm is effectively broken.
Meanwhile, TerraUSD's price has fluctuated wildly between $0.842598 to $0.315279. The coin recently lost its 1:1 peg to the U.S. dollar, the foundation of it qualifying as a stablecoin, aka a cryptocurrency tied to a more stable asset like the U.S. dollar or gold.
On Friday, as investors moved away from TerraUSD and Luna, they migrated to the Maker Foundation's DAI stablecoin, which saw a surge in activity. The governance token, MKR, of MakerDAO also saw 30% growth as a result.
As a consequence of Terra's collapse, DAI stablecoin became the fourth-largest stablecoin on Friday, ratcheting up a $6.47 billion market capitalization and becoming the second-largest DeFi token.
Government officials, however, are keeping note of the massive turmoil in crypto markets this week: “The outstanding stock of stablecoins is growing at a very rapid rate and we really need a consistent federal framework,” U.S. Treasury Secretary Janet Yellen said this week. The government is looking to develop stablecoin regulations by next year.