HONG KONG (Reuters) – A subsidiary of the company behind the collapsed stablecoin TerraUSD said on Monday it had spent the bulk of its reserves trying to defend its dollar peg last week, and would use the rest to try to compensate some users that had lost.
The token collapse last week sent crypto down a slide that resumed on Monday as bitcoin pared gains it made over the weekend.
The world’s largest cryptocurrency fell 5% to around $29,700 Monday in Asian trade, sliding along with stocks on fears of rising inflation and higher interest rates.
Bitcoin has lost about a fifth of its value so far this month, due to the stunning crash of TerraUSD, which is supposed to be 1:1 pegged to the dollar but is currently trading at around 14 cents, roiling the cryptocurrency markets.
Luna Foundation Guard (LFG), a Singapore-based non-profit organization designed to advocate for TerraUSD, said on Twitter on Monday that it will use its remaining assets to compensate remaining users of the so-called stablecoin, starting with smaller holders, although it has not yet done so. To determine the best way to do this.
The organization has built up large reserves including more than 80,000 bitcoins and millions of dollars in other stablecoins to support TerraUSD, most of which it said was spent trying to prop up the coin last week.
LFG initially pledged to raise $10 billion in bitcoin reserves. The reserve has dropped to 313 bitcoin plus other assets so far, on Twitter.
CRYPTO Eye Regulator
The incident has drawn particular attention, including from financial regulators, to stablecoins and the role they play in the crypto system as the primary means of transferring funds between cryptocurrencies or for converting balances into fiat money.
The Governor of the Bank of France, Francois Villeroy de Gallo, said at a press conference that crypto assets can disrupt the international financial system if they are not regulated and made interoperable in a consistent and appropriate manner across jurisdictions. Read more
He cited stablecoins, which he said are somewhat wrong, among the sources of risk.
Speaking separately, ECB Executive Board member Fabio Panetta also said on Monday that stablecoins are vulnerable to a run. Read more
Tether, the world’s largest stablecoin, briefly lost its 1:1 peg on May 12, before recovering. Unlike TerraUSD, Tether is backed by reserves in traditional assets, according to its operating company.
On the same day, Bitcoin dropped as much as $25,400, its lowest since December 2020, but recovered to $31,400 on Sunday.
Ether, the second largest cryptocurrency, fell 5.6 percent to about $2,000 on Monday.
Regulators elsewhere are also concerned. The US Federal Reserve warned last week that stablecoins were vulnerable to an influx of investors because they were backed by assets that could lose value or become illiquid in times of market stress.
Elon John reports. Additional reporting by Medha Singh in Bengaluru; Editing by Bradley Perrett and Emilia Sithole Mataris
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