The idea behind stablecoins and cryptocurrency in general was to get away from the types of Ponzi schemes that control the current financial paradigm. It turns out that digital "money" is no better, at least not with these two coins.
Back in December, we reported about speculation that Tether, another so-called stablecoin, may not actually be tethered to the price of a dollar. It remains to be seen if Tether ultimately goes the way of Terra and Luna, the latter of which lost 96 percent of its alleged value in just one week.
"TerraUSD, or UST, plunged to as low as 26 cents," reported CNBC. "The so-called stablecoin is meant to maintain a 1-to-1 peg with the U.S. dollar. It was last trading at around 68 cents, according to Coin Metrics data."
"Sister token luna, which has a floating price and is meant to serve as a kind of shock absorber for UST, at one point dived to less than 90 cents before recovering slightly to $1.72. The coin has lost roughly 96 percent of its value in the past seven days, and now has a smaller market value than its stablecoin counterpart."
Will Tether soon follow suit?
While all this was going on, Bitcoin and Ethereum, two better-known "blue chip" crypto tokens, saw wild swings throughout the day. The entire crypto market along with the regular market are both down big.
"Bitcoin was last up one percent at $31,377, having previously slumped below $30,000. Ether fell one percent to $2,309," CNBC added.
Stablecoins were believed by many to be bank accounts for the crypto economy. The idea was that they functioned as a sound store of value in an otherwise highly volatile and unpredictable environment.
Now those beliefs have been dashed as the entire concept of a stablecoin just went down the toilet. Many are questioning the soundness of any crypto at this point, since all bets seem to be off.
"UST is what's known as an 'algorithmic' stablecoin," CNBC explained.
"It uses a complex system of minting and burning tokens to adjust supply and stabilize prices. UST's price has crumbled under the pressure of a sell-off in cryptocurrencies recently, resulting in further panic in the market."
In an attempt to clot the bleeding, Do Kwon, the coin's creator, increased the rate at which new Luna is minted per day. This was supposed to re-peg the coin back to the dollar.
The problem is that this effort is quickly gobbling up the venture's supply of stablecoin.
"I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this," Kwon tweeted on Wednesday, May 11.
Investors are instead hoping to see a fresh capital injection to support the coin. They are said to be in the process of trying to raise another $1 billion in new funding to prop up the stablecoin.
"They're letting the system bleed out in the hope that it will start re-pegging back when the 'excess' UST supply has been worn out," said Vijay Ayyar, head of international at crypto exchange Luno, about Kwon's announcement, which he said does not inspire any confidence.
More related news can be found at CryptoCult.news.
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