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    Binance Suspends LUNA, UST Withdrawals Due to Network Congestion Amid Market Turbulence

    Cryptory.net - According to Binance, the high volume of pending UST transactions has caused the network to be slow and congestion.

    The crypto market had a rough week after the US Federal Reserve increased the interest rate by 0.5% to combat inflation. Even stablecoins, which are known for their stability and low volatility, are affected. TerraUSD, also known as UST, once dropped to $0.64, forcing the project to inject billions of dollars to support UST.

    Tuesday noon Asian time, Binance announced to suspend LUNA and UST Withdrawals due to the high volume of pending transactions.

    What happened to UST?

    In the crypto space, the term “depeg” refers to the price of a stablecoin rising or falling excessively relative to the fiat currency it is pegged to. Terra’s UST has been continuously depeg over the past few days amid strong market volatility. On May 7, the price of UST fell to $0.985. The increase or decrease of about 1% in the value of stablecoins is not a big deal, usually quickly stabilized. However, the heavy pressure on UST kept the stable coin at a dangerous price level for 16 hours continuously.

    In Terra’s case, 1 UST can always be redeemed for $1 worth of LUNA. Arbitrageurs are enticed to buy UST while it is under $1, redeem it for $1 worth of LUNA, and then sell the LUNA for a profit. Conversely, when UST trades above $1, investors can mint 1 UST with $1 worth of LUNA and sell the UST for a profit. However, Terra’s mechanism can be broken when the market falls. According to Curve Finance, a large amount of UST was sold off on the platform on May 7. At that time, investors could sell the UST for LUNA to make profit but because of the bear market, LUNA lost more than 50% of its value from its peak a month ago. Therefore, the sale of UST can no longer guarantee profitability.

    The trouble continued when a few large investors sold more than $500M in UST positions on Anchor, the popular savings protocol that serves as the largest supply sink for UST. Deposits on Anchor have fallen by half since Friday from $14B to $7B.

    On the morning of May 10, Terra’s LUNA hit $37, down more than 40% over the past 24 hours. The sharp devaluation caused the total capitalization of LUNA to be lower than that of UST, creating anxiety among investors about the ability to convert 1 UST for 1 USD of LUNA. This caused Terra’s price to drop to $0.641, the lowest in the history of this digital currency. The devaluation of up to 36% from the level of 1 USD makes UST fall into a dangerous threshold, facing the risk of collapse.

    At noon of the same day, Binance announced to stop providing withdrawal services with LUNA and UST of TerraForm Labs. The reason given by the world’s largest cryptocurrency exchange is network congestion due to the high volume of pending transactions.

    While acknowledging the possible inconvenience to its investors, Binance stated: “Binance will reopen withdrawals for these tokens once we deem the network to be stable and the volume of pending withdrawals has reduced. We will not notify users in a further announcement.”

    On April 18, UST knocked out Binance USD (BUSD) to become the third largest stablecoin in the market after Tether (USDT) and USD Coin (USDC) based on market capitalization. However, the recent turbulence across the Terra ecosystem has caused BUSD to regain its position as the 9th largest cryptocurrency by market capitalization. At the time of writing, UST maintains the 10th spot on the list with approximately $16.5 billion in market cap.

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