Terraform Labs shuts its blockchain after collapse of Luna

A chart on mobile cryptocurrency exchange app shows the plunging price of cryptocurrencies on Thursday. [NEWS1]

Terraform Labs has shut its Terra blockchain after the price of a related cryptocurrency lost almost all its value, wiping out billions of dollars of wealth in a day and rattling the crypto market globally.

The Korea-managed Singapore-incorporated company devised an algorithmic system designed to maintain a dollar peg by incentivising arbitrage between the TerraUSD and Luna coins. When the system failed Wednesday, the price of Luna collapsed.

Critics have derided the setup as being built to fail.

Terraform Labs was founded in 2018 by Daniel Shin and Stanford-educated Do Kwon. Do is being called the Elizabeth Holmes of crypto. Shin, who also founded the TMON e-commerce site, is no longer associated with Terraform Labs.

Luna traded at 0.5 cents on Thursday with a market capitalization of $56 million, according to CoinMarketCap. The market cap was down 99.8 percent from $28 billion just a week ago. It traded at around 0.85 cents on Friday. TerraUSD lost its peg to the dollar last week. It dropped to 26 cents on Wednesday.

"A stablecoin known as TerraUSD experience a run and had declined in value," said U.S. Treasury Secretary Janet Yellen when she testified before the Senate earlier this week. "I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability."

Following the fall, local crypto exchanges, including Upbit and Bithumb, issued warnings to investors on the trading of coins related to Terraform Labs.

The price of bitcoin fell to $26,000 on Thursday. It was the first time bitcoin sunk below the $27,000 level since December 26, 2020. It recovered to above $29,000 on Friday.

The recent volatility in cryptocurrencies arrived following the U.S. Fed's 50-basis-point rate increase in early May. Additional rate increases are expected.

Consumer prices in the United States rose 8.3 percent on year in April. It was lower than the 8.5 percent growth in March, but higher than the expected 8.1 percent.

BY JIN MIN-JI [jin.minji@joongang.co.kr]