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Why Did Terras UST Algorithmic Stablecoin and Luna Crypto Coin Fail?

Bitcoin’s price is down more than 50% from its November 2021 peak and has fallen over 11% today, nearing the $30,000 mark, leaving many investors scrambling to figure out what’s going on. As the Terra Invest in Terra coin ecosystem begins to grow substantially within other L1s like the Avalanche blockchain, for example, then there’s a possibility that UST will be backed by a lot of Avalanche’s token, AVAX, he said.

  • Due to the nature of the highly volatile and convergent cryptocurrency market, a very large collateral must also be maintained to ensure the stability.
  • I am not interested in UST personally, but I’ve been asked to do a little analysis on it.
  • Meta needs to prove that a Web 3.0-Web 2.0 hybrid is what the public is really looking for.
  • Griffin and Shams’ research attributed the creation of unbacked USDT to the rise in Bitcoin’s price in 2017.
  • He did not clearly note which L1s that would entail, but he said that bitcoin will remain the dominant reserve for UST.

The potentially problematic aspect of this type of stablecoins is the change in value of the collateral and the reliance on supplementary instruments. The complexity and non-direct backing of the stablecoin may deter usage, Forex as it may be difficult to comprehend how the price is actually ensured. Due to the nature of the highly volatile and convergent cryptocurrency market, a very large collateral must also be maintained to ensure the stability.

Luna Crypto Crash: How UST Broke and What’s Next for Terra

It may never, and even if it does the reputational damage will be almost impossible to overcome. Over $17 billion in crypto value has been wiped out, and the collapse has raised questions about stablecoins in general. The percent change in trading volume for this asset compared to 7 days ago. NFTs are expected to play a key role in future metaverses, as the digital Forex assets can represent ownership and identity in digital worlds. With Bitcoin having halved in value since its peak last November and other tokens following it south amid a market plunge in not only the digital space but across the board, reasons for optimism seem scarce. Do Kwon, co-founder of Terraform Labs, has shared a rescue plan for the depegged stablecoin UST.

We have a Bullish setup here on this failure of a stable coin and while things look fundementally bad for it i still cant ignore the technicals. I come at this chart with the mindset of all the money i put in is basically like throwing cash in a pit of fire but it’s a risk i’m willing to take on the off chance that this Double Bottom plays out. To check TerraClassicUSD’s Invest in Terra coin price live in the fiat currency of your choice, you can use’s converter feature in the top-right corner of this page. The total dollar value of all transactions for this asset over the past 24 hours. The percentage of Binance customers who increased or decreased their net position in BTC over the past 24 hours through trading.

What did Terra do?

If would-be attackers created a large position in UST and then unstaked $2 billion at once, it could depeg UST, which would mean terra’s team would have to sell portions of its bitcoin reserve to repeg the stablecoin. Once investors saw that UST lost its peg, they would then rush to unstake and sell their UST, which would require more bitcoin reserves to be sold, adding further sell pressure. The, created by Terraform Labs, is different from tether and USDC in a key way — it’s not backed by actual US dollars, but rather is what’s known as an algorithmic or decentralized stablecoin. To understand the crypto catastrophe, you first need to know what a stablecoin is. In essence, it’s a cryptocurrency that’s pegged to a more stable currency. The biggest such coins are tether and USDC, which like most stablecoins are both tied to the US dollar. So if you have 1,000 USDC tokens, for instance, they can at any time be exchanged for $1,000.

ust coin

Seigniorage-style coins, also known as algorithmic stablecoins, utilize algorithms to control the stablecoin’s money supply, similar to a central bank’s approach to printing and destroying currency. Seigniorage-based stablecoins are a less popular form of stablecoin. Perhaps conceding the foundational problem of tethering luna to UST, Kwon proposed removing UST, previously the main selling point of the blockchain, from the terra ecosystem. “Terra’s app ecosystem contains hundreds of developers working on everything from DeFi to fungible labor markets, state-of-the-art infrastructure and community experience,” he said, proposing this should be preserved at the expense of terraUSD.

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