As the price of Terra UST Stablecoin continues to fall, a supporter says a rescue plan is in the works


May 12, 2022, 23:05 PM

As the price of Terra UST Stablecoin continues to fall, a supporter says a rescue plan is in the works

May 11, 2022, 19:05 PM

(TerraUSD (UST) is the Terra blockchain's decentralised and algorithmic stablecoin. It is a scalable, yielding coin with a value pegged to the US dollar. TerraUSD was created to provide value to the Terra community while also providing a scalable solution for DeFi in the face of severe scalability issues faced by other stablecoin leaders such as Dai. As a result, TerraUSD promises users increased scalability, interest rate accuracy, and interchain usage.)

Engineering a new money, especially an algorithmic Stablecoin, is difficult. At the same time, Terra (UST-USD), the world's third-largest Stablecoin, lost its peg to the US dollar on Monday, falling as low as 69 cents and prompting a huge number of investors to sell their holdings. The controversial Stablecoin (which has a circulating quantity of roughly 17 billion tokens) fell below 40 cents early Wednesday, prompting considerable concern. Stablecoins, which use distributed ledger technology to connect the value of tokens to something that already exists, are divided into two types. Tether (USDT-USD) and USD Coin (USDC-USD) are examples of stablecoins that are backed by cash and assets to sustain their value, whereas algorithmic stablecoins are not. Instead, the pegs on which these coins are based are expected to be maintained by an arbitrage relationship with another cryptocurrency (in Terra's case, a sister token called Luna (LUNA-USD). The issue is that it hasn't worked in the past (at least for the past few days). The relationship is based simply on the notion that the currencies have a common floor, and that one can always swap (or print) Luna (LUNA-USD) to ensure the $1 peg for Terra (UST-USD). Do Kwon, the founder of Terraform Labs (which powers the Terra blockchain), is aware of this dynamic and has been diversifying into Bitcoin (BTC-USD) reserves for currency support—in case confidence in Luna (LUNA-USD) and Terra (UST-USD) erodes—but this could be risky if Bitcoin devalues as it has in the last six months. "We're getting close to releasing a $UST recovery plan." In reaction to the crisis, Kwon tweeted, "Hang tight." "We see run risks, which could threaten financial stability, risks associated with a payment system and its integrity, and risks associated with increased concentration if stablecoins are issued by firms that already have substantial market power," Treasury Secretary Janet Yellen said at a Senate Banking Committee hearing on Tuesday. "A Stablecoin known as TerraUST went on a run and saw its value plummet. This, I believe, just underlines the fact that this is a rapidly rising commodity with rapidly growing risks. A unified federal structure is critical.

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