Crypto crash: Terraform halts blockchain behind UST, Luna for 2nd time in 24 hours

The unraveling sent shockwaves through the crypto market, triggering deep losses before sentiment stabilised. PHOTO: AFP

BANGKOK (BLOOMBERG) - The blockchain behind the collapsed TerraUSD stablecoin and the affiliated Luna token stopped processing new transactions for the second time in less than a day.

Terraform Labs said in a tweet from their verified account that validators, the entities responsible for verifying transactions on the blockchain, took the step to “come up with a plan to reconstitute” the Terra network.

“A quorum among validators is attempting to halt the network in order to avoid a DECIMAL crisis due to exponential depreciation of LUNA,” read one post on the Terra Validators Discord server seen by Bloomberg prior to the transaction shutdown.

TerraUSD, also known as UST, was trading at just 11 US cents as at 12.11pm in Singapore on Friday (May 13), according to Bloomberg data. Luna has sunk to virtually zero, compared with its all-time high of US$119.51. 

Total Luna tokens in circulation are up from 1.46 billion on Thursday to more than 6.5 trillion, according to data from CoinMarketCap. 

The relationship between UST and Luna was central to attempts to maintain the former’s US$1 peg. Traders could swap a unit of the stablecoin, whether it was trading at, below, or above US$1, for one unit of Luna, and vice versa.

The effect of unloading UST at prevailing prices was to dramatically increase the supply of Luna, further depressing the price of that token.

UST was one of the largest and most closely-watched algorithmic stablecoins before its intended 1-1 peg to the US dollar disintegrated this week. The unravelling sent shock waves through crypto, triggering deep losses before sentiment stabilised.

The blockchain’s validators earlier stopped and then restarted transactions, the crypto equivalent of turning a computer off and then on again, in order to implement a software update designed to help avoid attacks on the network.

The broader crypto market appeared to recover on Friday.

Bitcoin climbed as much as 7.5 per cent to US$30,674 and Ether rose as much as 9.3 per cent.

Join ST's Telegram channel and get the latest breaking news delivered to you.