The stunning meltdown of UST stablecoin and LUNA, its sister token, has many wondering about algorithmic stablecoins and how they are supposed to work. eking0x explains the crypto concept and what's happening now:
Over the past year, however, a new form of stablecoin has emerged that differs in its collateralization: algorithmic stablecoins, such as terraUSD , magic internet money , frax and neutrino usd .
In the case of the Terra blockchain, which runs the largest algorithmic stablecoin platform, the algorithmic tango is performed by UST, a stablecoin, and terra , Terra’s native cryptocurrency that backs the stablecoin. For the remainder of this article, we will use “LUNA” to refer to terra to avoid any confusion.Algorithmic stablecoins are typically undercollateralized – they don’t have independent assets in reserves to back the value of their stablecoins.
Cryptocurrencies – similar to all assets in the market, such as houses or stocks – move up and down in price depending on the market demand and the supply of the asset. This also includes stablecoins because they’re essentially cryptocurrencies freely traded on the market. The algorithm’s promise is to keep this in check, as we explore in the context of UST in the next section, before delving deeper into how that can go terribly wrong.TerraUSD maintains – or is supposed to maintain – its 1:1 parity with the U.S. dollar via an algorithmic relationship with Terra’s native cryptocurrency, LUNA. Behind the relationship is anWhen the UST supply is too small and demand for it is too high, the price of UST goes above $1.
Australia Latest News, Australia Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
What is an algorithmic stablecoin? Why is Terra in the news? Here's what investors need to know.Stablecoin is a type of cryptocurrency whose value is pegged to other assets, usually fiat currencies such as U.S. dollars. On Monday, algorithmic stablecoin...
Read more »
UST Woes Draw Spotlight in Janet Yellen's Senate Hearing on Financial RisksU.S. Treasury SecYellen raised the specter of the UST drama in the opening minutes of the Senate Banking Committee's hearing today on risks to the U.S. financial system. jesseahamilton reports
Read more »
TRON DAO Deploys $2 Billion to Protect TRX Following the LUNA CrashJustin Sun has warned that TRON and its algorithmic stablecoin could be the next target after the recent saga with Terra and UST.
Read more »
Regulators Should Pay Attention to USTUST losing its peg should draw regulatory attention to algorithmic stablecoins and their role in the crypto ecosystem, nikhileshde writes in this week's State of Crypto newsletter.
Read more »
Tether to move over 1B USDT from Tron to Ethereum and AvalancheTether’s chief technology officer paoloardoino assured traders that USDT is not like algorithmic stablecoins such as UST and has a “strong, conservative and liquid portfolio that consists of cash and cash equivalents.”
Read more »
The Best Hypoallergenic Earrings For Sensitive EarsYou can't go wrong with hypoallergenic.
Read more »