TerraUSD lost its dollar peg as Binance suspended withdrawals

A stablecoin’s promise broke in public

On May 10, 2022, TerraUSD (UST) remained materially below its intended one-dollar price while Binance temporarily suspended withdrawals of UST and Terra’s LUNA token. Binance’s notice attributed the halt to a high volume of pending transactions caused by network slowness and congestion, and said withdrawals would reopen when the network stabilized and the backlog fell. The exchange action was a verified operational consequence of the stress; it was not proof that the Terra blockchain itself had stopped.

The market damage deepened during the date. CoinDesk reported at 6:15 p.m. New York time that UST had fallen below $0.80 after spending roughly 12 hours around $0.90. Its report, updated at 22:28 UTC, put LUNA below $16, down 63% from $44.18 over the preceding 24 hours. Those figures are contemporaneous observations from the publication’s cited price feeds, not a universal daily close. Crypto trades continuously, prices differed by venue, and fragmented liquidity made any single print an incomplete measure.

Why the mechanism mattered

UST was designed to target $1 through a protocol relationship with LUNA rather than through a conventional reserve of dollars and short-term securities matching every token. Under the design, market participants could exchange UST and LUNA at a protocol-defined value, creating an incentive to contract UST supply when its market price fell below the target.

That design made confidence in LUNA and the availability of arbitrage central to the peg. Falling UST demand caused redemptions into newly issued LUNA; selling pressure and dilution could then weaken LUNA, reducing the market value available to absorb additional UST exits. May 10 supplied a live stress test of that feedback loop. Binance’s withdrawal interruption added another practical constraint: users of that venue temporarily could not move the two assets out over the Terra network even though trading conditions elsewhere continued to change.

The record available on May 10 did not yet establish the final outcome. Terraform Labs co-founder Do Kwon said a recovery plan was near, according to contemporaneous reporting, but details had not been announced. Claims that the peg would certainly recover—or that the system had already reached its ultimate endpoint—went beyond what was knowable on the date.

The policy signal arrived the same day

The episode crossed from crypto-market plumbing into Washington’s financial-stability debate on May 10. During a Senate Banking Committee hearing, Treasury Secretary Janet Yellen described UST as having experienced a run and declined in value, according to the contemporaneous hearing report. She said the event illustrated rapid growth and financial-stability risks that required an appropriate framework.

Treasury’s prepared testimony, independently preserved on the department’s website, was broader. It said digital assets could create efficiencies but might pose financial-system risks, and it called for payment stablecoin arrangements to be covered by a consistent federal prudential framework. The prepared text did not name UST. That distinction matters: the official document verifies the administration’s policy position and date, while the contemporaneous hearing account supports the UST-specific exchange during questioning.

What May 10 established

By the end of May 10, the defensible conclusion was narrow but consequential: a major algorithmic stablecoin had failed to hold its stated target through sustained stress; its companion token had lost most of its value over a 24-hour window reported that evening; a leading exchange had restricted Terra-network withdrawals; and senior U.S. officials were using the event in the stablecoin-policy debate.

This reconstruction does not use the system’s later collapse to make the May 10 evidence appear more certain than it was. The unresolved questions on that date were whether UST could regain and retain $1, whether announced support or a recovery plan would restore confidence, how much additional LUNA issuance the mechanism would require, and whether venue congestion would clear.