September 24, 2023

Crypto Exec Believes Algorithmic Stablecoins will End with TerraUSD

Tether’s co-founder believes that the collapse of the TerraUSDstablecoin, which had been presented as an ‘algorithmic stablecoin’, means that it is the end of such tokens in the crypto space. Stablecoins are not the usual type of cryptocurrency because these are pegged to an actual asset, such as the US dollar. Advertised as an algorithmic stablecoin, UST, or TerraUSD, which sent shockwaves throughout the market because of its collapse, was meant to be pegged to the dollar. Real-world assets have been used to peg the other stablecoins in the market, such as the USD Coin and Tether. These include government bonds and fiat currencies, but as far as UST is concerned, the creators claimed that an algorithm governed it.

Since the stablecoin lost its peg to the dollar, its sister cryptocurrency called Luna also saw a sell-off that resulted in its value declining to zero. Due to this debacle, the digital currency’s co-founder said that it is unlikely for algorithmic stablecoins to survive in the market. BLOCKv is a digital token firm and its co-founder, Reeve Collins also talked about the matter. He stated that the losses were certainly unfortunate, but he added that the stablecoin was backed by an algorithm, which means that the goal was pegging something to the US dollar.

Collins shared his thoughts last week in Davos, Switzerland, where he was attending the World Economic Forum. He stated that a number of people had already pulled out their money from TerraUSDin the last couple of months because they had come to the realization that it had sustainability issues. Therefore, he said that this brought about a cascade effect and would put the idea of algostablecoins to rest. Collins also co-founded Tether, which is also a stablecoin, but is not governed by an algorithm. Its issuer claims that corporate bonds, as well as those of the US Treasury and cash has been used to back it.

Last month, when the crypto market was facing tumultuous circumstances, Tether had also temporarily lost its peg to the US dollar, but regained it eventually. One of the companies that helped issue the USDC coin is Circle and its chief executive, Jeremy Allairedoes not agree with Collins because he believes that people would continue working on the idea of algorithmic stablecoins. He said that they had been compared with the Holy Grail and even the Fountain of Youth, so people with interest in these things would continue working on them.

But, he added that what regulation is introduced after the disaster of TerraUSDcould chart a different course altogether. He said that this would likely provide clear guidelines about the interaction with the financial system and the market. Regulatory authorities and governments globally have been focusing on stablecoins. This year, Pat Toomey, a member of the Senate Banking Committee in the US had released a draft that outlined the rules that would regulate stablecoins. Last month, Janet Yellen, the Treasury Secretary, had also called on lawmakers for introducing legislation applicable to stablecoins.

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