UST crash could be the end of algorithmic stablecoins

Luna, the sister cryptocurrency of controversial stablecoin TerraUSD, has dropped to $0. The collapse of the algorithmic stablecoin TerraUSD has raised questions about the future existence of similar crypto assets.

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Algorithmic stablecoins like terraUSDThe co-founder of the digital currency tether told CNBC, which has collapsed and sent shock waves through the crypto market, is unlikely to survive.

A stablecoin is a cryptocurrency that is typically pegged to real-world assets. TerraUSD or UST, is an algorithmic stablecoin that is supposed to be pegged to U.S. dollar.

While stablecoins like tether and USD Coin are backed by real-world assets like fiat currencies and government bonds to maintain their dollar rates, UST is governed by an algorithm.

UST lost its dollar peg and that also led to a sell-off for its sister token luna, fell to $0.

The crash led to warnings that algorithmically stablecoins may have no future.

“Unfortunately the money… was lost, however, that’s not a surprise. It’s an algorithm-backed stablecoin. So it’s just a bunch of smart people going on. trying to figure out how to fix something to the dollar,” Reeve Collins, co-founder of digital token company BLOCKv, told CNBC at the World Economic Forum in Davos, Switzerland, last week.

“And a lot of people have pulled their money out in the last few months, because they realize it’s not sustainable. So that kind of crash has had a cascade effect. And it will probably be the end of the world for most of them. all exceptional stablecoins.”

Collins is also a co-founder of tether, which is not an algorithmic stablecoin. But the issuer of tether claims it is backed by cash, corporate bonds, and corporate bonds. During the crypto market turmoil last month, tether also briefly lost its dollar rate before regaining it.

Jeremy Allaire, CEO of Circle, one of the companies behind the release of the USDC stablecoin, said he thinks people will continue to work with algorithmic stablecoins.

“I’ve compared algorithmically stable coins to the Fountain of Youth or the Holy Grail. Others call it financial alchemy. And so there will continue to be financial alchemists who will continue to have financial alchemists. working on potions to create these, and to find… the Holy Grail of a digital currency of stable value. So I fully look forward to continuing to pursue that.” , Allaire told CNBC last week.

“Now, what happens to the regulations around it is another question. You know, there will be clear lines drawn as to what might interact with the market. What could be the future? dealing with … the financial system, with risks embedded,” he added.


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