Fall of US Terra: all stablecoins doomed? – BeinCrypto France

The demise of the stablecoin TerraUSD is still on everyone’s lips. Following this event, the legitimacy of similar tokens is questioned by experts.

The end of a stablecoin category

Definitely, stablecoins cause a lot of ink and saliva to flow. As the crypto sphere ponders the fall of US Terra and how it could have been prevented, the legitimacy of stablecoins is constantly being questioned. How could an asset that was supposed to be stable get so bad?

Among all the tokens destined for imminent death, a certain category of stablecoins is singled out: algorithmic stablecoins. The latter, whose value is controlled by an algorithm that increases the number of coins in circulation or decreases it so that the price of the token does not exceed the dollar or is not below it, are very prolific within the crypto sphere. . Unfortunately, the missing UST was one and there are still several more in circulation.

The catastrophic fall of Terra showed us that the process was not as secure as we thought and Reeve Collins, the co-founder of Tether, seems to see the thing with a bad eye.

It’s a shame the money was lost, however, that’s no surprise. Terra 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. And a lot of people have withdrawn their money over the past few months, because they realized it wasn’t viable. So this crash had a cascading effect. And that will probably be the end of most algorithmic stablecoins.

Reeve Collins in an interview for CNBC during the World Economic Forum in Davos.

According to him, the end of this type of stablecoins will not occur because of a new fall which will have been caused by the stalling of their algorithm which has become faulty (although a new crash remains entirely possible) but well by the fact that members of the crypto sphere have lost confidence in themselves. They will therefore not want to reinvest in a similar currency. However, this hypothesis seems to be invalidated by the new stablecoin of TRON, the USDD, which has made the bet to release a real copy of the UST.

What about other stablecoins?

However, this is not the immediate end of all stablecoins, since it would take different events (although possible) to see their disappearance happen. Those pegged only to the dollar, for example, are intrinsically tied to the associated fiat currency. However, the latter is not always stable either and it would only take one more crisis for it to lose a good part of its value, dragging tokens such as Tether in its wake.
The same goes for stablecoins indexed to certain commodities, which are also subject to the whims of the market and above all to their availability! Unfortunately, digital currencies based on fiat currencies account for a majority of stablecoins in circulation. All it would take, therefore, was a great economic catastrophe to compromise them.

Finally, some stablecoins are also collateralized by another cryptocurrency, usually Ethereum, and are also subject to its variations. Thus, a further fall in cryptocurrencies could harm them and make them disappear. This hypothesis currently remains unlikely since Bitcoin and Ethereum are still holding the helm and are considered the main survivors of the crisis. Nevertheless, the latter not being finished, anything can still happen.

The crypto crash will have exposed the flaws in stablecoins. While those based on an algorithm are still trying to keep their heads above water, the others are still walking on a thread. It’s not the end of stablecoins in the industry yet, but anything could change their fate.


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Fall of US Terra: all stablecoins doomed? – BeinCrypto France

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