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#Terra was called the most capitalized algorithmic stablecoin on the market, which was pegged to the US dollar at a one-to-one ratio. UST was stabilized using coins from the parent project Terra (LUNA).
However, on May 8, the #TerraUSD stablecoin lost its peg to the US dollar amid the withdrawal of 2.2 billion UST from the Anchor platform. At the same time, the parent coin LUNA also began to rapidly decline in price.
Why did this happen?
During a serious drop in the crypto market and a significant decrease in the project's profitability, suddenly some users began withdrawing huge amounts from the $LUNA platform.
Anchor is a decentralized protocol on the Terra blockchain that allows users to earn on UST deposits. Over two billion digital dollars were withdrawn from Anchor during a period of declining profitability.
Thus, on May 11, the “stable” digital dollar UST fell to 30 cents, and the next day it recovered to 53 cents. In addition to the fact that UST users who held funds in this coin lost more than half of their assets, the crypto exchange Binance suspended the withdrawal of coins on the Terra network.
According to Rongui Gu, CEO and founder of blockchain security company CertiK, the Terra attack shows that people have overestimated the capabilities of blockchain in the short term, but they still “underestimate what can be done with blockchain in five or ten years.”