Binance Suspends Terra Withdrawals Amid UST Crash

As LUNA’s price plummeted sharply due to a massive selloff, the market value of UST, Terra’s stablecoin offering, went below the estimated $1 price point.  Binance briefly halted Terra (LUNA) and UST withdrawals.

Withdrawals on Terra Network $LUNA temporarily suspended.https://t.co/hIGrAEzOwD

— Binance (@binance) May 10, 2022

At the same time, Binance’s BTC/UST trading pair hit new highs of over $42,000, while other Bitcoin dollar marketplaces struggled to keep their $30,000. Binance suspended all withdrawals for LUNA and UST tokens for six hours (between midnight and 6:00 AM EST) as a reaction to the growing uncertainty in the Terra ecosystem, citing a high volume of outstanding withdrawal transactions.

The huge volume of pending UST transactions, according to Binance, is due to network weakness and congestion. Binance acknowledged the potential for investor disruption and 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.”

According to CoinMarketCap data, LUNA, the Terra blockchain’s native currency, has lost 51.9 percent of its value in the last 24 hours and is now trading at $32.53. Over the last 24 hours, the native coin has wiped out roughly $11 billion in investor capital. The coin has dropped 75% since its all-time high of $119.18 in April 2022.

Though unfavorable price behavior can be found throughout the crypto market, it is particularly bleak because Terra’s native stablecoin, UST, has also lost its dollar peg. Because UST and LUNA are so closely linked, the stablecoin’s loss of peg has had significant consequences.

Unlike Tether’s USDT and Circle’s USDC, UST is a decentralized algorithmic stablecoin that is not backed by a dollar (or other traditional assets). Instead, smart contracts, specifically a mint-and-burn mechanism between LUNA and UST, manage its peg.

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