What is an algorithmic stablecoin? Why is Terra in the news? Will it collapse and could it endanger the whole crypto ecosystem?
What happens when a “stablecoin” isn’t so stable? Investors are trying to make sense of what’s going on with a popular token known as TerraUSD, the world’s fourth largest stablecoin, which has failed to maintain its value relative to the U.S. dollar.What is an algorithmic stablecoin? A...
Investors are supposed to be able to exchange one UST for $1 worth of LUNA, and vice versa. When UST is trading below $1, traders have incentive to buy one UST and exchange it for $1 worth of LUNA to make a profit. As UST is burnt to mint LUNA, the former’s supply would be reduced and its price will be pushed up. When UST is trading above $1, traders could be incentivized to exchange their LUNA for UST. As UST’s supply increases, its price would fall.
Luna also plunged, with its price down about 50% over the past 24 hours to around $16, according to CoinDesk data. The token’s market capitalization has shrunk from more than $29 billion seven days ago to about $6.5 billion, according to CoinGecko. A representative of Luna Foundation Guard didn’t immediately respond to an email seeking comment. Kwon didn’t respond to a request for comment.
Reasons behind the intensive UST outflow remain unclear. Some analysts attributed UST’s woes to a loss of confidence among investors.
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