Terra (U.S. stable coin) has lost $11 billion in the past 24 hours

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Terra (U.S. stable coin) has lost $11 billion in the past 24 hours

One of the largest stable coins by market capitalization, TerraUSD, fell more than 60% in the last 24 hours, sending investors into a frenzy. Since Monday, the algorithmic stable coin has lost $11 billion and has fallen to a low of $0.2998 this week, stunning investors who have seen the experimental stable coin lose its $1 value.

In September 2020, Terra launched their coin on Bittrex Global's exchange. In April, Terra was the third largest stable coin in the market by market cap, but it has seen a dip in recent weeks.

Stable coins have been pegged to stable assets, like the U.S. dollar or gold, but Terra recently lost the 1 to 1 peg. Instead of relying on fiat currency or other stable assets like gold, Terra is an algorithmic coin supported by a sister token known as LUNA. The algorithm lets the stable coin be supplanted with LUNA when Terra falls below $1 to ensure stability. This model appears to be broken. Markets have remained volatile, with over half of the investors in the red in the past. During the recent crypto chaos, both Terra and LUNA took a heavy beating, with neither of them being above $1 or capable of being a stable peg for the other, and investors pursuing a massive selling spree of both of the sister token. Terra soldBitcoin, its reserve currency, to recover losses, but that did not lead to the recovery they had hoped for.

The stable coin departed from the norm by using a mint-and-burn practice alongside its native token LUNA, which saw prices drop by 94% this past week.

The dramatic price dips in the stable coin market prompted US Treasury Secretary Janet Yellen to say that stablecoins are risky for the financial system. I think the volatility with TerraUSD illustrates that this is a rapidly growing product and that we need a framework that is appropriate.