This is the next thing for Terra as the failed crypto project tries to find a new path forward
Tether has previously stated that their stablecoin is backed 1-1 by US dollars.
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This week, backers of failed crypto project Terra voted to revive the initiative, with a new block chain and luna token – and without its controversial algorithmic stablecoinTerraUSD.
The founders who had been looking for the next step forward for the project fell apart as soon as it took off. The the collapse of the Terra . project led to a combined loss of about $60 billion between the stablecoin, also known as UST, and its sister cryptocurrency luna. Earlier this month, UST plummeted below the $1 latch, which provoked Cryptocurrency sell-off.
Like many other stablecoins, UST is pegged at a 1-to-1 ratio to the dollar. Casting a new UST requires “burning” or destroying a luna. This structure allows for arbitrage opportunities that are key to maintaining rates: Users can always swap one luna for UST and vice versa for a guaranteed price of $1, regardless of the market price. field of either token at that time.
“What the Luna ecosystem has done is they have a very positive and optimistic monetary policy,” said Stuti Pandey, an investor in Web3. and joint venture partner at Farmer Fund.
This is not the first time a decentralized algorithmic stablecoin has failed. Many people in the crypto space had hoped that the Terra project could succeed. But it may take a long time before investors recover from Terra failed this month —And that can put a new project in limbo.
Felix Hartmann, managing partner at Hartmann Capital, told CNBC: “There is a big question mark.
“It’s going to take a long time for the luna founders as they won’t have the same multi-billion dollar market cap they used to be: They’ll probably start over on the ground floor,” he added. . “So it’s something to watch, but maybe the real results – if it happens – will last longer than a year or two. Definitely not this month.”
Legal barriers also appear. Stablecoins have been of prime interest to regulators for the exact same reason highlighted by the TerraUSD incident: the lack of transparency in trading stablecoins and the reserves that support them, as well as the reliance of those who rely on them. market participants in them to enable trading in other cryptographic protocols. .
“Algorithmic stablecoins as a dead idea,” said Omid Malekan, a crypto industry veteran and adjunct professor at Columbia Business School.
He added: “There are other companies that are not as big as UST and all of them are in a state where they can’t sustain their pricing right now. “That failure has made other conservative stablecoins – those backed by fiat – seem very attractive in comparison. But the open question now is also the kind of regulatory response the entire industry has received. receive.”
–CNBC’s Ryan Browne contributed to this story.
