The big crypto news of the week was the rupturing of TerraUSD’s supposed peg to the US dollar. TerraUSD is a so-called algorithmic stablecoin supported by some fancy technology that was designed to maintain its value at $1. That 1:1 peg broke dramatically this week, with TerraUSD falling to $0.23 before recovering to $0.48 on Friday. TerraUSD occupies a subset within the crypto space known as stablecoins, which are a form of cryptos backed by real assets.
Until recently, TerraUSD was the ninth largest crypto with a total market cap of $24 billion. It’s now slipped to 17th place with a market cap of just $5.6 billion. It operated on an entirely different technology, comprising two separate cryptos: Luna and Terra. This is where the algorithm came into play. TerraUSD was theoretically always worth $1, while Luna, its sibling crypto, has no fixed price. If the value of TerraUSD exceeds $1, the equivalent value of Luna is burned.