Was UST Intentionally Butchered by Competitors? South Korean Ministry Investigates
The fall of UST might be intentionally caused by its competitors, claims South Korean Minister.
The “People Power Party” representative, a South Korean politician Yoon Chang-Hyeon called a parliamentary hearing on TerraUSD (UST) due to its sudden collapse last week. According to a report from South Korean Newschannel “Newspim” on Tuesday, May 17, at a plenary meeting of the National Assembly’s Political Affairs Committee, Yoon Chang-Hyeon stated, “We should bring related exchange officials, including CEO Do Kwon of Terra, which has become a recent problem, to the National Assembly to hold a hearing on the cause of the situation and measures to protect investors.”
The Fall of Terra
The Terra blockchain experienced a crisis starting on May 7 when the value of its algorithmic stablecoin, UST, started to decrease. This continued over the following days until UST hit a low of below 10 cents. The LUNA token, which is native to the Terra blockchain, also lost more than half of its value and is currently trading at just fractions of a cent. As per the industry sources, the Financial Services Commission (FSC) and the Financial Supervisory Service asked cryptocurrency exchange operators to share overall transactions, including volume of trading, their closing prices, and the number of relevant investors linked to TerraUSD and LUNA. In addition, regulatory authorities also asked them to provide countermeasures to the market crash and analyze what caused the collapse.
The Reason Behind the Fall as Stated
Terra’s rapid rise and fall can be difficult to explain succinctly without any prior knowledge of the blockchain. In fact, many of its boosters hid behind obfuscation and jargon to rebut some of its obvious flaws. Here’s a brief explanation. Terra is its own blockchain, just like Bitcoin or Ethereum. Its foremost product is the UST stablecoin, which is pegged to the U.S. dollar. Stablecoins are used by crypto traders as safe havens for when markets in DeFi (decentralized finance) get choppy: instead of converting their more volatile assets into hard cash, which can be expensive and trigger tax implications, traders simply trade them for stablecoins.
Some stablecoins derive their value from being fully backed by reserves: if investors decide they ever want out, the stablecoin’s foundation should theoretically have enough cash on hand to repay all of them at once. UST, on the other hand, is an algorithmic stablecoin, which relies upon code, constant market activity, and sheer belief in order to keep its peg to the dollar. UST’s peg was also theoretically propped up by its algorithmic link to Terra’s base currency, Luna.
Terra’s crash gives even more ammo to regulators who argue that the space needs to be roped under government control. On May 12, Treasury Secretary Janet Yellen called for “comprehensive” regulations of stablecoins, saying that while the current crash is too small to threaten the whole financial system, stablecoins are “growing very rapidly. They present the same kinds of risks that we have known for centuries in connection with bank runs.”
Now, if this fall was created intentionally by its investors or was the fault of its developers and the CEO, is yet to be determined by the South Korean Ministry.