The Terra blockchain resumed activity after being halted for over nine hours amid an ongoing crisis. The blockchain ecosystem’s meltdown caused its stablecoin UST to crash. This comes at a time when the cryptocurrency market plunged as the sell-off intensifies.
Stablecoins are cryptocurrencies whose prices remain stable even if the crypto market sells off. The coin runs on an algorithm that balances the supply and demand. Stablecoins are the best to facilitate borrowing and lending because of their non-volatile nature.
The halt means no new blocks can be generated on the blockchain network. So, crypto holders were not able to move their Terra assets until the blockchain was unfrozen. “Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack,” the company tweeted.
After the resumption of the blockchain, Terra blockchain asked the validators (crypto-miners) to disable on-chain swaps and IBC channels. The blockchain company has encouraged users to bridge off-chain assets, such as bETH, to their native chains.
For the uninitiated, the Terra ecosystem has two coins— Terra and Luna. To maintain the price of Terra, the Luna supply pool adds and subtracts from Terra’s supply. Users then burn Luna to mint Terra and even burn Terra to mint Luna, this is all done via an algorithmic module designed by the blockchain developers.
It should be noted that this is quite different from stablecoins like USDT or USDC which are backed by fiat equivalents.
Meanwhile, in the last few days due to algorithmic issues, users holding Luna suffered huge losses. Remember, UST is to a stablecoin pegged 1:1 with USD.
According to Coinmarketcap, the UST price dropped to a whopping 0.225 on May 11, meaning that what was meant to be a stablecoin lost almost 80 per cent of its value in a few days.