WHY THIS MATTERS IN BRIEF
If you have cash under your bed it’s there forever, but what happens when cryptocurrency companies just turn their networks off … customers just found out and it’s not good.
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Have you ever wondered what happens, or would happen, if someone just flicked a switch and all your money went away – because they just literally turned their network off? Well, that’s the new world that we live in, when it comes to cryptocurrencies at least.
After the dramatic collapse in the cryptocurrencies TerraUSD and Luna, administrators responded overnight by pausing the network and then resuming it — effectively turning the computer off and on again. Welcome to the new world of “money.” Despite this though the move could not stem the plunge in Luna, which crashed to effectively zero.
Terraform Labs, the company behind the crypto project, has now completely switched off the network, in agreement with “validators” who oversee transactions. Say goodbye to your $$$.
The company said on Twitter it is trying to come up with a plan to save the project and that it would update worried investors soon.
Will Chen, a crypto developer connected to Terra, said the network’s members were trying to come up with solutions to “salvage the remaining value in the ecosystem.”
Major crypto exchange Binance suspended trading in TerraUSD, also called UST, and Luna. Other exchanges continued to allow investors to trade the cryptos, although the suspension of the network means the trades may not be settled.
It caps a tumultuous few days for the cryptocurrency project.
Before it came undone, TerraUSD was the world’s third-largest stablecoin — a type of cryptocurrency that is designed to always be worth $1. Stablecoins are widely used by crypto investors as places to store money while they trade.
But TerraUSD “depegged” from the dollar at the weekend during a turbulent period for digital assets and financial markets more generally.
The depegging and weaknesses in the token’s design triggered a loss of confidence in the project which also dragged down its sister cryptocurrency, Luna, which is free-floating.
TerraUSD last traded at around $0.15 early Friday morning, far off the $1 mark. The stablecoin’s market capitalization plunged from $18.6 billion to less than $2 billion within a week.
Luna had plunged effectively 100% from over $80 a token a week ago to zero as of Friday, destroying around $28 billion worth of value in a matter of days.
Terra’s failure sent shockwaves across the crypto market, contributing to sharp falls in Bitcoin and Ethereum on Thursday. Both cryptos rebounded by around 10% on Friday, however.
“There could be significant negative repercussions for cryptocurrencies and digital finance if investors lose confidence in stablecoins,” Monsur Hussain, an analyst at Fitch Ratings, said.
Yet he added: “Links between crypto markets and regulated financial markets remain weak. We expect this to limit the potential for crypto market volatility to spill over and cause wider financial instability.”
And as for investors getting their money back, well, we’re waiting for someone to jam their mucky finger onto the “On” switch and get the network back up and running!