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TerraUSD collapses, Tether holds as stablecoins suddenly become unstable

  • TerraUSD (UST) tank
  • Tether (USDT) holds for now
  • Trust in cryptos is falling
  • Stability is not a guarantee
  • Be cautious with this asset class and expect the unexpected

The dictionary defines stable as likely to be unyielding or tipping over – i.e. firmly fixed. In the world of cryptocurrencies is a stablecoin tied to a fiat currency or commodity intended to anchor its value and increase reliability. If they deviate from the anchor principle, the reason for their existence disappears.

The recent crypto debacle happened in the stablecoin sector. the market capitalization The digital token asset class peaked at over $3 trillion in November 2021, hitting record highs. After a correction to late January lows and a price consolidation into early May 2022, the current stablecoin issuance pushed the entire crypto class below the January 24 lows; By the end of last week, the market cap had fallen below the $1.252 trillion mark.

This is what awaits you in this article

TerraUSD tank

According to his website:

Airdrop from VNSMART TerraUSD collapses, Tether holds as stablecoins suddenly become unstable, Crypto Trading News

The Terra Protocol is the leading decentralized and open source public Blockchain for algorithmic stablecoins. Using a combination of open marketarbitrage-Incentives and decentralized oracle voting, the Terra Protocol creates stablecoins that consistently trade the price of any fiat currency.

(UST) has fulfilled its promise to “Consistently trade the price of any fiat currency‘ against those from November 2020 to early May 2022, when the protocol fell apart. This happened because algorithmic stablecoins, unlike traditional stablecoins, are not actually backed by real fiat assets but use complex technologies to maintain their peg. When Bitcoin crashed, the technological dollar peg collapsed.
TerraUSD collapses, Tether holds as stablecoins suddenly become unstable, Crypto Trading NewsDiagram description generated automatically
Source: CoinMarketCap

As the chart shows, UST is below the 7 cent mark, a tenth of its level from early May.

Mike Novogratz, the founder and CEO of crypto investment firm Galaxy Digital and an investor in Terra and , another crypto that plummeted from over $100 to below a cent per token, said a combination of central banks:Liquidation of a massive liquidity bubble” put too much pressure on Terra to generate high-yield returns on users’ holdings.

The downward pressure on foreign exchange reserves coupled with UST withdrawals triggered a stress scenario akin to a ‘run on the bank’.”

In early January 2022, Novogratz tweeted an image symbolizing his commitment to LUNA.
TerraUSD collapses, Tether holds as stablecoins suddenly become unstable, Crypto Trading News
Source: Twitter

He recently commented: “My tattoo will be a constant reminder that risk investing requires humility.

Tether is holding for now

‘s (USDT) website states:

Tether tokens are the most widely used stablecoins as they pioneered the concept in the digital token space.”

As of this writing, the USDT token has lived up to its promise and held its value against the US Dollar.

TerraUSD collapses, Tether holds as stablecoins suddenly become unstable, Crypto Trading NewsGraphical user interface, diagram, application, line chart description generated automatically

Source: CoinMarketCap

At the time of publication, USDT is the third largest cryptocurrency behind Bitcoin and Ethereum. At 99.96 cents per token, USDT had a market cap of over $73 billion and has held its value in the face of the UST collapse.

Trust in cryptos is falling

The UST crash shook investor confidence in stablecoins and the cryptocurrency asset class as a whole.
TerraUSD collapses, Tether holds as stablecoins suddenly become unstable, Crypto Trading NewsDiagram, line chart description generated automatically
Source: bar chart

The chart shows Bitcoin falling to its last low of $25,919.52 on May 12, its lowest level since late 2020. A falling stock market, higher interest rates and the Terra debacle put pressure on the leading crypto.
TerraUSD collapses, Tether holds as stablecoins suddenly become unstable, Crypto Trading NewsDiagram description generated automatically
Source: bar chart

Ethereum fell to $1721.474 on May 12, its lowest price since June 2021. Many others of the 19,500+ cryptocurrencies also fell as the stablecoin became unstable.

Stability is not a guarantee

Some market participants believed that tokens like USDT and even UST were the same as holding US dollars. They were lulled into a false sense of security after years of trading at par to the US dollar and fulfilling their promise when “stablecoins.”

But many, like Mike Novogratz, have learned a dear lesson: dollars are dollars, while stablecoins are not. The term “stablecoinIndeed, does not guarantee reliable, solid performance against the tied asset.

Be cautious with this asset class and expect the unexpected

Cryptocurrencies and stablecoins remain an emerging asset class with many opportunities and associated risks. Digital yuan, dollar, euro and other government-sponsored currencies are on the horizon. They will be the true stablecoins as governments use these tools to ensure consistency that supports trade, monetary and fiscal policy goals and agendas.

However, the risk of independent stablecoins will remain high. Since the developers are pegging the tokens to fiat currencies, their upside potential is limited. But as the market noted with USDT, the downside risk was unlimited.

Only invest capital you are willing to lose in the cryptocurrency asset class, as the potential for significant gains comes with significant ever-present risks.

As of December 31, 2021, Mike Novogratz’ Galaxy held over $400 million in LUNA. The token, which once sold for over $100 and is now worth less than a cent, inflicted a projected $300 million loss on Galaxy and squeezed its equity by 12% to $2.2 billion, an expensive lesson that all crypto investors and speculators should heed.

Source: Crypto News Deutsch

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