[ED] Cryptocurrency crash
The crash of TerraUSD (UST) cryptocurrency and its sister token Luna last week is sending shockwaves through the global crypto market. UST, a stablecoin designed to maintain its value at $1, plunged to as low as 23 cents Wednesday. Luna, which is traded in exchange for TerraUSD to maintain its peg to $1, lost almost all of its value, wiping out billions of dollars of wealth overnight.
UST was one of the world’s most stable cryptocurrencies until the end of last month. The coin’s market cap was once the sixth-largest among all digital assets. But the algorithmic mechanism of UST and Luna hit a wall as sentiments in the global crypto market worsened amid the price decline of bitcoin. The weakening market led to sell-offs and the price of UST eventually dropped below $1, resulting in a simultaneous fall in the price of Luna. As a result, major crypto exchanges have halted trading of UST and Luna following the meltdown.
Terraform Labs, established by Korean engineer-turned-CEO Kwon Do-hyung, wooed investors by offering a 20 percent interest rate to stakeholders of UST, which caused some critics to call the TerraUSD project a Ponzi scheme. No wonder there have been mounting calls for strengthening regulations on stablecoins around the world.
The Financial Services Commission has unveiled a plan to enact a law governing digital assets next year to protect investors. During his campaign, President Yoon Suk-yeol also pledged to promote the local crypto market, including allowing initial coin offerings (ICOs) so that companies can raise funds through digital assets.
However, promoting the crypto market should be pursued carefully, given that it could just end up producing more victims. The innovative potential of cryptocurrencies must not be underestimated, but their usefulness has not been verified yet. Taking into account that the underprivileged are also the most vulnerable to investment risks, top priority must be placed on protecting investors. It’s also necessary to prepare for the possibility that Luna’s collapse might rattle the domestic financial system.