TerraUSD collapse will ‘probably be the end’ of most algorithmic stablecoins, crypto executive says

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

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Algorithmic stablecoins like terraUSDwhich collapsed and sent shockwaves through the cryptocurrency market, is unlikely to survive, the co-founder of the digital currency tether told CNBC.

Stablecoins are a type of cryptocurrency that is usually pegged to a real-world asset. TerraUSD or UST, is an algorithmic stablecoin that was supposed to be pegged to the American dollars.

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

UST lost its peg to the dollar and this also led to a sell off of its sister token luna, which crashed to $0.

The debacle led to warnings that algorithmic stablecoins may have no future.

“It’s a shame the money…was lost, however, that’s no surprise. It’s an algorithm-based stablecoin. So it’s just a bunch of smart people trying to figure out how to peg something to the dollar,” Reeve Collins, the 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“And a lot of people have withdrawn their money over the last few months, because they realized it wasn’t sustainable. So this crash had a cascading effect. And that’s probably going to be the end of most stablecoins algo.”

Collins is also the co-founder of tether, which is not an algorithmic stablecoin. But the tether issuer says it is backed by cash, US Treasuries and corporate bonds. In the crypto market turmoil last month, tether also briefly lost its peg to the dollar before regaining it.

Jeremy Allaire, CEO of Circle, one of the companies behind the issuance of the USDC stablecoin, said he believes people will continue to work on algorithmic stablecoins.

“I have compared algorithmic stablecoins to the fountain of youth or the holy grail. Others have called it financial alchemy. And so there will continue to be financial alchemists who, who are working on the magic potion to create these things, and to find … the holy grail of stable value, an algorithmic digital currency, so I fully expect to pursue that,” Allaire told CNBC last week.

“Now what happens with the regulation around it is a different question. Will there be, you know, clear lines drawn on what can interact with the market. What can interact with … the financial system, given the risks that are embedded,” he added.

Upcoming regulation

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