On May 9, 2022, the TerraUSD (UST) algorithmic stablecoin crashed, losing nearly all of its value. What does this mean for stablecoins?
Hardly the end. If anything, it reflects the continuously increasing interest in crypto that has been growing since 2009. In order for any asset to fall, it first has to rise.
While this seems incredibly obvious, the longer context helps investors understand the “sticky” trend that is crypto. Crypto is a new asset class that investors globally are considering as part of their investment portfolios as well as for payment means. Collateralized stablecoins are primarily used for transactional purposes and in lending products.
Bitcoin’s price movement since 2009 felt haphazard and lackadaisical until 2020. In other words, naysayers appeared smart until the price reached over 61,000 USD during the height of the post-covid recovery. We also say institutional investors entered into the space strongly. Yet the pursuant correction reintroduced general skittishness into the hearts of experts and novices alike.
Collateralized stablecoins exist to address that problem through more guaranteed stability than an algorithmic stablecoin like TerraUSD can. For transactional purposes, this means peer-to-peer payments can occur without third-party intermediaries. Unlike with payments using Bitcoin, a collateralized stablecoin does not face volatile swings and are seen more as digital fiat by many.
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