a Several regulators such as the US Fed and the Bank of England are discussing how stablecoins should be better monitored at this time. This is due to the fact that they serve as the foundation of the cryptocurrency economy and see billions of dollars in daily trade.
Although the Terra Blockchain’s UST stablecoin lost billions of dollars when it was de-pegged, Binance CEO Changpeng Zhao Algorithmic stablecoins still have a role to play in the cryptocurrency industry.
On the most recent episode of the GM podcast, the head of the world’s largest cryptocurrency exchange admitted that he was “disappointed” with how Terra’s collapse was handled. He said the “operational response speed” was “very weak”. However, he added that fiat-backed stablecoins such as Tether and USDC also carry some risk.
“Just because a project fails doesn’t mean that the algo stablecoins will never work,” CZ said. “But algo stablecoins have, I would say in general, more risk than fiat-backed stablecoins.”
A stablecoin is a cryptocurrency that is (called) stablecoin. Unlike bitcoin and ethereum, stablecoins have fixed prices as they are backed by currencies such as the US dollar or the Japanese yen. But rather than being tied to a specific store of assets, algorithmic stablecoins maintain their pegs using code included in their systems.
“It is a different type of risk, but very clear one,” CZ said of algorithmic stablecoins. “When you benchmark an asset, when you use one asset for collateral or staking a different asset, there is always volatility. So the risk in algo stablecoins is very high.”
Investors in Cryptocurrency put the founder of Terra, do kwon, in high regard. Terra had a market valuation of over $30 billion and was one of the largest blockchains before it crashed in May. Terra employed computer code to maintain consistency, however, this code ultimately failed, and when Terra’s UST lost its peg, Terra’s other token LUNA collapsed as well.