The price of the stablecoin TerraUSD was down sharply on 16 May as the cryptocurrency’s creator announced a plan to attempt to rescue the project.
The price of TerraUSD, created to maintain a value equal to a dollar, was down 36% at 11 cents, according to CoinMarketCap. Trading volume over the past 24 hours was less than $400m, down from the more than $5bn in volume it saw last week.
TerraUSD’s market value was down to $1.3bn from nearly $19bn earlier this year.
TerraUSD had a catastrophic meltdown last week amid the wider market selloff, falling well below its $1 value. The collapse put pressure on the price of bitcoin and other cryptocurrencies, and erased the value of TerraUSD’s sister token, called Luna. As a so-called algorithmic stablecoin, TerraUSD used Luna to keep its value at $1.
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On 16 May, Luna was trading down 15% at $0.0002, according to CoinMarketCap. Its total market value was about $1.4bn on 16 May, according to CoinMarketCap. Earlier this year, Luna crested at $41bn.
On the afternoon of 16 May, Do Kwon, the token’s founder, outlined what he was calling a revival plan for Terra. The crux of the plan involved what is called a “fork” in software terms — basically taking the existing code and starting over with an updated version.
The new version would do away with the algorithmic stablecoin, and would distribute 1 billion tokens of a new version of Luna to existing Luna and TerraUSD holders and developers.
Also on 16 May, the nonprofit Luna Foundation Guard, which controlled the reserve fund that backed the stablecoin, outlined the remaining reserves left after TerraUSD’s collapse. Among its assets, the group has 313 bitcoins, worth about $9.3m at current prices.
On 7 May it had 80,400 bitcoins, worth roughly $3.5bn. The foundation sold most of the bitcoins to defend the TerraUSD peg, the group said.
Overall, the group said it still had about $106m in assets that it will use to compensate remaining holders of TerraUSD, beginning with the smallest holders. It didn’t provide specifics on how this compensation might work.
The moves didn’t have much of an effect in the wider crypto markets. None of the top 20 cryptocurrencies were rising on Monday afternoon, according to CoinDesk. Bitcoin fell 1.8% at $29,737, and ether fell 3.1% to $2,021.
The downdraft in crypto markets has attracted scrutiny from regulators in the Biden administration, who have been looking to develop policies to govern the asset class.
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“The fact that we have this across-market meltdown because of a single stablecoin…should be a lesson for what potentially could happen,” Rostin Behnam, head of the Commodity Futures Trading Commission, said in a CNBC interview on 16 May. He cited the potential for a “knock-on effect to the traditional assets and traditional markets.”
Securities and Exchange Commission Chair Gary Gensler warned investors on 16 May that crypto markets are “a highly speculative asset class” that lack the disclosures that issuers of equities or debt provide.
Paul Kiernan contributed to this article.
Write to Paul Vigna at paul.vigna@wsj.com
This article was published by The Wall Street Journal, part of Dow Jones