Traders stated that the order book for LUNA and UST looked to be frozen on Tuesday AM Asia time, with no orders going through.
Binance announced the temporary restrictions in a blog post, blaming network congestion for “a high volume of pending withdrawal transactions.”
“Once we determine that the network is stable and the volume of pending withdrawals has decreased, Binance will reopen withdrawals for these tokens.” We will not alert users in a subsequent notification,” the company added.
The announcement comes amid significant volatility for Terra’s algorithmic stablecoin UST, which has recently fallen substantially against the dollar. UST is the third-largest stablecoin by total issuance behind USDT and USDC.
A blow to LFG’s efforts
Significant efforts have been made to strengthen UST. The Luna Foundation Guard (LFG), a Singapore-based nonprofit dedicated to supporting Terra-based stablecoins and the broader Terra ecosystem, has revealed a plan to lend $1.5 billion in bitcoin and UST to third-party trading firms to support UST’s peg on May 9.
Despite this, the price of UST has fallen in comparison to USDT, the largest dollar-pegged stablecoin. On Monday, according to Binance data, it hit a low of $0.6065. It has rebounded to roughly $0.91 at the writing of this article.
Meanwhile, data from CoinGecko indicates that the price of LUNA, the Terra blockchain’s native asset that may be burned in exchange for UST in normal market conditions, has dropped from over $62.50 to around $28.50 (as of writing this) in the last 24 hours.
What is Terra saying about this event?
According to some Twitter reports, traders have been unable to sell UST at a price lower than 70 cents.
Terra’s official Twitter account urged its users to refrain from spamming the network.
The Luna Foundation Guard (LFG) currently has $171.4 million in USD in reserve, down 85 percent from the day before. It has $86.82 million in UST in reserve, down 41 percent from the day before.
The LFG has drained its Bitcoin reserves to maintain the Stablecoin peg. It has also suspended withdrawals from Kraken and CoinList have also been suspended at this time. FTX is still processing withdrawals of UST.
What is Terra?
Terra is a decentralized finance ecosystem (DeFi) that creates algorithmic stablecoins. Do Kwon and Daniel Shin created it in 2018. In DeFi lending and borrowing applications, stablecoins, or cryptocurrencies connected to reserve assets like the US dollar, are often employed.
As per the white paper of Terra, it employs a proof of stake model, in which validators verify transactions depending on how many coins they own. Proof of stake advocates claims that it uses substantially less energy and has a lower environmental impact than previous models.
Terra and LFG must also deal with significant volatility in the larger crypto markets. Bitcoin’s price fell below $30,000 briefly yesterday before rising to roughly $32,120 as writing this article.