UST debacle will ‘probably be the end’ of algorithmic stablecoins – Reuters News in France and abroad

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.

Dan Kitwood | Getty Images News | Getty Images

Algorithmic stablecoins like terraUSD, which have crashed and sent shockwaves through the cryptocurrency market, have little chance of surviving, 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 US dollar.

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, the UST was algorithmically driven.

UST lost its peg to the dollar, which 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 is 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, in Switzerland, last week.

“And a lot of people have withdrawn their money over the past few months, because they realized it wasn’t sustainable. So this crash had a cascading effect. And that will probably be the end of most stablecoin algorithms.”

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 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 regulations 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.

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UST debacle will ‘probably be the end’ of algorithmic stablecoins – Reuters News in France and abroad


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