Stablecoin TerraUSD drags down crypto market; bitcoin sinks to 18-month low at $27,000

(Representative Image)

US dollar-pegged stablecoin TerraUSD, or UST, got de-pegged and caused a crypto market crash, sinking bitcoin, ethereum, dogecoin, cardano and others along the way.

Bitcoin, the world's biggest cryptocurrency, dropped to an 18-month low of $27,000, while ethereum wiped out 20 percent of the value in 24 hours and was trading below 18 percent at $1,916.82.

TerraUSD, one of the world's largest stablecoins, has lost a third of its value this week, spooking cryptocurrency investors and partly contributing to bitcoin's tumble below $30,000 for the first time in 10 months.

Also Read: Explained | What are stablecoin, how are they different from other cryptocurrencies?

Stablecoins are digital tokens pegged to the value of traditional assets such as the US dollar. They are popular as safe havens in times of turmoil in crypto markets and are a common medium of exchange, often used by traders to move funds around and speculate on other cryptocurrencies.

TerraUSD is a so-called algorithmic stablecoin. On May 10, it broke its 1:1 peg to the dollar and fell as low as 67 cents, according to price site CoinGecko.

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Unlike most other major stablecoins, which are backed by other assets, TerraUSD's value is derived by complex algorithmic processes, linked to another paired token called Luna, which is free floating.