Binance, a leading cryptocurrency exchange, has temporarily suspended withdrawals of $LUNA and $UST. The two digital coins operate on the Terra network, which has recently experienced congestion and slowness. As a result, the values of LUNA and UST have plummeted, with losses of 53 percent and 15.5 percent, respectively.
Terra has been building up its Bitcoin reserves in order to safeguard its algorithmic stablecoin, UST, which is now worth $16 billion. However, since losing its peg to the gloomy crypto market, the network has been in free collapse. The stablecoin was selling at $0.87 at the time of publication, down 13% from its psychological price of $1.
Binance published a press statement in response to this revelation, essentially suspending all LUNA and UST token withdrawals as of May 10, 2022, at 02:0 AM (UTC). The suspension was attributed to a significant volume of pending withdrawal transactions caused by network slowness and congestion, according to the statement.
There was no indication of when the suspension will be lifted. Rather, the exchange stated that the ban will be lifted once the network had stabilized and the volume of pending withdrawals had decreased. The statement also pledged to keep users informed of any new developments and finished with an apology for the inconvenience.
LUNA and UST users reacted angrily to Binance's decision to halt withdrawals. Proponents and industry players slammed it, stating that it isn't truly decentralized because open market operations are executed by a single body. Do Kwon, the CEO of Terraform Labs, stated that the transaction was a coordinated attack on the protocol. He also stated:
“The Luna Foundation Guard (LFG) council is not trying to exit its Bitcoin position by moving $1.4 billion in BTC and UST, instead, it is putting capital in the hands of a professional market maker to strengthen the peg of the algorithmic stablecoin.”
As a result, investor mood fell, with the large decrease cementing a negative sense among LUNA and UST holders as Terra failed to maintain the peg.
Samuel Bankman-Fried, the CEO of the FTX exchange, expressed similar comments in March. Market crashes, he warned, would result from restrictions on volatile assets. IRON, the stablecoin launched by Iron Finance, fell to zero as predicted, making UST the second stablecoin to crash.
Binance Exchange has since issued a warning to users about the volatile nature of digital assets and urged users to invest prudently.