The fall of Terra UST has uncovered a key vulnerability in Bitcoin and crypto in general, according to prominent BTC critic Schiff.
Peter Schiff, CEO of Euro Pacific Capital, has taken to Twitter to comment on Terra (LUNA) and its UST tied to the US dollar.
In the midst of a major selloff, both cryptocurrencies are plummeting. In the last 24 hours, the stablecoin that lost its peg to the US dollar has dropped by over 49%, trading at $0.4832.
Terra (LUNA), the ecosystem’s first coin, has plummeted 83.46% to $4.02 after trading at $87 on May 4. The cryptocurrency was trading at an all-time high of $119 in early April, well beyond the $100 mark.
UST is an algorithmic stablecoin designed to trade 1:1 with the US dollar. According to Chinese crypto blogger Colin Wu, 46,239,360 LUNA were issued on May 10th. Over 80 million additional LUNA tokens have been created in the last four days.
In an attempt to keep the price at $1, 1.2 billion UST were burned on May 10. This burn set a new record for the amount of cryptocurrency burned in one day.
However, the coin continues to lose its peg to the US dollar, currently trading below $0.5.
On Sunday, the UST lost its USD peg for the first time. LFG (Luna Foundation Guard) has acquired another 37,863 Bitcoins (holding a comprised 80,394 BTC back then).
Two days ago, LFG said that it would lend a large amount of Bitcoin to market makers in order to sustain UST and its USD peg. This “lend” appeared to be more of a large selling order, handing away BTC worth $47,000 for only $33,000.
However, as the price of Bitcoin fell, a significant outflow of liquidity from UST occurred, and the token lost its $1 peg.
LUNA can’t sell enough Bitcoin to keep UST at $1, according to Bitcoin skeptic Peter Schiff, since Bitcoin can’t provide enough liquidity for it. A stablecoin supported by Bitcoin, he added, is “backed by nothing.”
According to Schiff, this is Bitcoin’s fatal defect.
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